Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

NEW WRIT

For West Lothian, in the room of John Taylor, esquire, deceased.—[Mr. Bowden.]

PRIVATE BUSINESS

MAIDSTONE CORPORATION (TROLLEY VEHICLES) PROVISIONAL ORDER BILL

PIER AND HARBOUR PROVISIONAL ORDER (GREAT YARMOUTH NEW BRITANNIA PIER) BILL

PIER AND HARBOUR PROVISIONAL ORDER (GREAT YARMOUTH PORT AND HAVEN) BILL

PIER AND HARBOUR PROVISIONAL ORDER (LANGSTONE HARBOUR) BILL

Read a Second time and committed.

Oral Answers to Questions — ROYAL NAVY

Naval Establishments, Portsmouth (Frontages)

Commander Pursey: asked the Civil Lord of the Admiralty what consideration has been given to the development by the Admiralty of the frontages of the Royal Naval Barracks, "H.M.S. Vernon" and other naval establishments at Portsmouth or to leasing some of these frontages to private developers, to provide housing, office, shop and other accommodation.

The Civil Lord of the Admiralty (Mr. C. Ian Orr-Ewing): Discussions are proceeding between Portsmouth City Council and the Admiralty about plans to release 16 acres of land from the sites

of Victoria and Duchess of Kent Barracks, comprising important frontages to Pembroke Road, Jubilee Terrace, King's Terrace and Alexandra Road.

Commander Pursey: When does the Admiralty propose to start the equivalent of the Government's policy of the greater use of Post Office sites, the British Transport Commission's policy of increased site utilisation, and the Minister of Housing and Local Government's policy announced today of the greater use of land, and so reduce its expenditure by hundreds of thousands, if not millions, of pounds per year?

Mr. Orr-Ewing: We are looking at these sites, and we are getting rid of any surplus land which we may still have. In this instance we are getting rid of frontages amounting to more than 500 yards, and later probably a further 330 yards. I think that this ought to be quite useful to the Portsmouth City Council.

Mr. Willis: Can the hon. Gentleman say whether the initiative for this came from the Admiralty or from the Portsmouth City Council, and is the Admiralty really surveying this property with a view to seeing what is the best use that can be made of it?

Mr. Orr-Ewing: Regarding the Duchess of Kent Barracks, I went there myself, and we have been negotiating for a long time with the Portsmouth City Council. I am unable to say where the initiative started, but both sides were anxious to come to some agreement such as I have announced.

Lieut.-Commander Maydon: Can my hon. Friend say whether frontages in Portsmouth or other naval ports have already been given up for these purposes?

Mr. Orr-Ewing: I cannot answer that without notice. Perhaps my hon. and gallant Friend will be kind enough to put down a Question.

Admiralty Building, Earls Court

Commander Pursey: asked the Civil Lord of the Admiralty if he will state the total floor space and number of rooms in the new Admiralty building at Earls Court; what branches of the


Admiralty are to be transferred there; and on what date the transfer is to commence and be completed.

Mr. C. Ian Orr-Ewing: The floor space is 350,000 square feet net. There are 700 rooms including stores and plant rooms, canteen and telephone exchange roams. The transfer will start at the beginning of August and should be finished in two months. With permission I will include in the OFFICIAL REPORT the list of branches to be transferred.

Commander Pursey: Is it Admiralty policy to extend all these civilian departments on the principle of Parkinson's Law, or to reduce the number of staff and the accommodation required, and instead of using the full accommodation to use only the minimum and release the balance to another Government Department? The Admiralty does not need the whole of this vast building at the vast expense which is largely unnecessary.

Mr. Orr-Ewing: I have announced to the House that it is our policy to cut down our Admiralty headquarters. I gave the undertaking that we would cut down our staff by one hundred every year for the next five years, and we are keeping to this undertaking. That was the spirit of the Select Committee's Report, which we are carrying out.

Captain Litchfield: Will my hon. Friend give further thought to the decision, which I believe has been taken, to move the Admiralty library out of the main building, which I understand will involve splitting the library between the main Admiralty building and the building at Earls Court?

Mr. Orr-Ewing: I shall certainly look at that point.

Mr. Lipton: Is it not likely that the new building at Earls Court will itself prove inadequate, especially if it is proposed to rehouse there all our admirals, who now out-number the number of seagoing vessels in commission?

Mr. Orr-Ewing: I said that we were cutting down our total staff, so I cannot see why the hon. Member should say that we need more accommodation. The hon. Member's second point is a canard which comes up every time. If he looks

at the facts he will perhaps stop making incorrect imputations about the numbers of admirals. I have looked at the facts. In 1938 there were more admirals than we have now. We have cut down to 78 from 102, which was the number when the hon. Member's Government were in power.

Following is the list:


Branches to be transferred
From


Medical Director General
Queen Anne's Mansions


Director of Stores
Admiralty Whitehall and Rex House


Director of Navy Contracts (London offices)
Queen Anne's Mansions


Director of Victualling
Queen Anne's Mansions


Admiral Commanding Reserves and Inspector of Recruiting
Queen Anne's Mansions


Director of Naval Weather Service
Queen Anne's Mansions


Royal Naval Scientific Service
Queen Anne's Mansions


Chief Constable Admiralty Constabulary
Queen Anne's Mansions


Director General Navy Works
Pinner and Queen Anne's Mansions


Regional Offices (London Area)
Regent's Park, Black-health, Ealing and Waterloo Road


Organisation and Methods Branch
Admiralty Whitehall


Civil Establishments Branch I (Training Section)
Admiralty Whitehall


Associated Common Services
Admiralty Whitehall and Queen Anne's Mansions

Admiral Zenker

Mr. Frank Allaun: asked the Civil Lord of the Admiralty (1) what was the purpose of the recent official visit to the United Kingdom of Admiral Karl Adolph Zenker; and if he will make a statement;
(2) why, in view of the speech made by Admiral Karl Adolph Zenker in 1956, describing war criminals Doenitz and Raeder as individuals whom all German naval officers should strive to emulate, which resulted in his dismissal from the German Defence Ministry, he was allowed to make an official visit to British naval establishments.

Mr. C. Ian Orr-Ewing: Admiral of the Fleet Sir Caspar John, our First Sea Lord, was a guest of the Federal German Navy last year and we invited Admiral Zenker to make a return four-day visit to this country.

Mr. Allaun: Before inviting the admiral here, was the Minister informed of his 1956 speech, which led even Dr. Adenauer's Government to remove him? Was Zenker a fit person to make such a visit here? If Goering or Doenitz were alive today and had been reappointed to their former posts, as similar men have been, would they also have been welcome in this country?

Mr. Speaker: The last part of that supplementary question is out of order as being hypothetical.

Mr. Allaun: May I revert to the first two parts?

Mr. Speaker: The first part. I was ruling only about the second part.

Sir W. Bromley-Davenport: rose—

Mr. Speaker: I think the Minister desires to answer the part of the supplementary question which was in order. If he does not wish to do so, we can go on.

Mr. Orr-Ewing: I was about to make the point that it is the policy of the Ministry of Defence, and of the Service Departments also, to invite all chiefs of naval staff of friendly and allied nations to this country. We shall continue with that policy.

Sir W. Bromley-Davenport: Are not some of the facts given in these Questions totally incorrect? Is it desirable that the Order Paper should be used for the purpose of disseminating Communist propaganda against our N.A.T.O. allies?

Mr. Orr-Ewing: Some of the statements in the Questions are totally incorrect.

Mr. Allaun: Is the Minister aware that I carefully checked those facts and that they are correct? Secondly, is he aware that there are many hon. Members, and many people outside this House, who are not anti-German but who are increasingly anxious about the number of people who planned Hitler's war invasions and commanded his brutal occupations and have received increasingly important positions both in N.A.T.O. and in the West German naval forces?

Mr. Orr-Ewing: Increasing numbers of hon. Members are fully aware of where the hon. Member's affiliations lie.

Mr. Allaun: On a point of order, Mr. Speaker. Did that not sound to you rather like McCarthyism, which is opposed to the traditions of this House? Is it right that a Minister should make smearing remarks of this kind because he does not like the opinions which are expressed?

Mr. Speaker: The first part of what the hon. Member raises could not, I think, give rise to a question of order for me. If it does, I have not followed it. As to the second part, I have some difficulty in ruling. The reference was to affiliations without specifying what they were.

Mr. Paget: Further to that point of order. Surely and very plainly the Minister's remark was an aspersion upon my hon. Friend the Member for Salford, East (Mr. Frank Allaun). It was an aspersion by implication. By "affiliations" it was quite clear what was meant. In my submission, the word ought not to have been used and ought to be withdrawn.

Mr. Speaker: I am not entirely sure about that because I am not sure whether it is—whatever the word is—depreciatory of an hon. Member in any sense to suggest that he belongs to a particular political party, or has affiliations with it, because it represents a minority view. As this is Question Time, I should be obliged if the Minister would withdraw the aspersion because any imputation in Question Time is out of order.

Mr. Orr-Ewing: If the cap does not fit I shall be very happy to withdraw it.

Mr. Rankin: On a point of order—

Sir J. Duncan: On a point of order—

Mr. Speaker: I am willing to receive a point of order, but I cannot hear more than one at a time. I think I saw the hon. Member for Glasgow, Govan (Mr. Rankin) first.

Mr. Rankin: Is it not in accordance with the custom of this House that when any imputation is withdrawn it is withdrawn without any qualification, and did not the Minister qualify his withdrawal?

Mr. Speaker: Actually I did not hear the terms the Minister used because I was asking something.

Mr. Orr-Ewing: I said, if the cap did not fit I should be happy to withdraw it. If it is your desire, Mr. Speaker, that I should withdraw it, I withdraw it.

Sir J. Duncan: As points of order have been raised in connection with the Questions, may I ask, Mr. Speaker, that you should call the attention of the hon. Member for Salford, East (Mr. Frank Allaun) to the fact that he has responsibility for the statements in the Questions? You will recollect that the Civil Lord of the Admiralty has denied the accuracy of the statements in the Questions.

Mr. Speaker: It is true that an hon. Member tabling a Question bears personal responsibility for the facts stated in it. I do not rule about the accuracy or not of the facts.

Rex House and Queen Anne's Mansions, London

Mr. G. R. Howard: asked the Civil Lord of the Admiralty when the Admiralty will vacate Rex House, Lower Regent Street, and Queen Anne's Mansions, St. James's Park; how many staff will be displaced; and where they will be accommodated.

Mr. C. Ian Orr-Ewing: We expect to vacate Rex House and Queen Anne's Mansions at the beginning of next year. Some 2,000 staff are involved in the transfers. About 1,000 will move to Earls Court and about 1,000 to the Admiralty Main Building in Whitehall.

Mr. Howard: I am grateful for that Answer. Is this in accordance with the Select Committee's recommendations? Would not my hon. Friend agree that it is a very good thing to get Admiralty offices out of a rather old-fashioned but available building which could be used for housing? Queen Anne's Mansions were formerly flats. Is it not a good thing to get Admiralty offices out of this sort of place and to concentrate them elsewhere?

Mr. Orr-Ewing: Yes, this is in accordance with the spirit of the Select Committee's recommendation. The total

number of staff now to be moved out of the central London area as a result of these moves will be 1,700. I think that this is desirable on all scores. Certainly the new building will be more efficiently laid out than Queen Anne's Mansions.

Mr. Lipton: Are any admirals being moved?

H.M.S. "Albion"

Mr. Willis: asked the Civil Lord of the Admiralty whether the latest version of the commando-carrying Wessex will be ready for embarkation on H.M.S. "Albion" when she is commissioned.

Mr. C. Ian Orr-Ewing: H.M.S. "Albion" will commission with the new Wessex Mark I, which is now coming into service. The development of the later version, the Mark V, will not be completed until 1963.

Research and Development (Management and Control)

Mr. Willis: asked the Civil Lord of the Admiralty what changes have been made in Admiralty practice and procedures as a result of the Report of the Zuckerman Committee on the Management and Control of Research and Development.

Mr. C. Ian Orr-Ewing: As I told the hon. and learned Member for Kettering (Mr. Mitchison) on 2nd February, Admiralty practice broadly conforms to that advocated by the Committee.
The review of internal procedures, to which I also referred at that time, is not yet complete. In the meantime, however, we are conforming with the procedures laid down by the Defence Research Policy Committee fallowing the publication of the Zuckerman Report.

Mr. Willis: Can the hon. Gentleman say when the review will be complete? Can he give any indication whether or not there will be any saving as a result of it?

Mr. Orr-Ewing: I cannot give an exact date, but I hope that it will not be too long before the review is completed. It is too early to say what saving will be made, but obviously the whole object of the Zuckerman Report was to make sure that projects were backed which were financially sound, and that should help in this direction.

Anti-Submarine Weapons

Commander Courtney: asked the Civil Lord of the Admiralty whether Her Majesty's ships are fitted with antisubmarine weapons of performance equivalent to the United States Navy's Asroc; and whether it is intended to adopt this weapon for British use.

Mr. C. Ian Orr-Ewing: No, Sir. It is one of the weapons we are considering but no decision has yet been taken.

Commander Courtney: Can my hon. Friend confirm an impression being gained by some of us, which is that the very much greater efficiency of ASDIC, as developed over the last few years, has not been matched by the range and accuracy of anti-submarine weapons such as Limbo, which are available to the Royal Navy?

Mr. Orr-Ewing: It is true that with the greatly increased range and efficiency of ASDIC it is necessary to have more efficient long-range antisubmarine weapons. We are attending to this, and the first generation of the Wasp helicopter will perform that function. We are considering what ASROC type of weapons might follow.

Commander Courtney: My hon. Friend has not answered my question. Can he assure the House that this matter will be dealt with in respect of surface vessels and not merely helicopters?

Mr. Orr-Ewing: I shall certainly consider that point.

Mr. G. R. Howard: Would not my hon. Friend say that there is very close co-operation in the development of these types of weapon between our Government, Commonwealth Governments and the United States?

Mr. Orr-Ewing: It is close but, quite frankly, I wish that it was even closer.

Submarine Force, Eastern Atlantic (Commander)

Commander Courtney: asked the Civil Lord of the Admiralty what are the designated duties and area of operational responsibility of Comsubeastlant in war.

Mr. C. Ian Orr-Ewing: The Commander Submarine Force Eastern Atlantic would in war be responsible for the operation of N.A.T.O. submarines in the Eastern Atlantic Area. He would be directly responsible to the Commander-in-Chief, Eastern Atlantic Area.

Commander Courtney: Is it not a fact that only a small fraction of these submarines are British? Is it not further a fact that a number of Polaris-firing submarines will not come under the command of Comsubeastlant? Is it not time, based on the logic of numbers and these facts, to suggest that this command should be taken over by an American officer?

Mr. Orr-Ewing: It is not true to say that our slice is very small, or fractional. It is a very large fraction. In fact, it is the second largest fraction of this force. On the broader principle, my right hon. Friend the Minister of Defence recently announced at the Dispatch Box that we are considering the command situation, and this will certainly take into account the N.A.T.O. and Polaris questions.

Mr. H. Hynd: Will the Minister be careful not to accept the principle suggested by his hon. and gallant Friend, that an officer representing the largest national section of that force should be in command? If he does we shall have a German in command of the troops in Europe.

Mr. Orr-Ewing: I follow the logic of the hon. Member's observation, and I think that I would endorse it.

Sir H. Legge-Bourke: Will my hon. Friend see whether he can do something to avoid the use of these appallingly long abbreviated and combined words? Are not they really flocci-nauci-nihili-pili-ficatious?

Mr. Willis: Can the Minister say when this review is likely to be completed? Obviously the present command structure within N.A.T.O. makes nonsense. Ought not the position to have been reviewed a considerable time ago?

Mr. Orr-Ewing: I will draw the notice of my right hon. Friend the Minister of Defence to that point.

Amphibious Task Forces (Non-lethal Weapons)

Mr. Goodhart: asked the Civil Lord of the Admiralty what steps are under consideration for equipping the amphibious task forces with non-lethal weapons.

Mr. C. Ian Orr-Ewing: Stocks of dye-spray guns, tear gas and batons are available for issue to units employed on internal security duties.
The effectiveness of riot control measures will be increased by troop-carrying helicopters which are also equipped to dispense tear gas.

Mr. Goodhart: Is my hon. Friend aware that important new non-lethal weapons are reaching an advanced stage of development? Is it not a fact that they could be particularly useful in the sort of confused circumstances in which our amphibious forces might be called upon to intervene?

Mr. Orr-Ewing: I have noted my hon. Friend's point. I hope to make a visit to the establishment in due course and have a look at it myself.

Oral Answers to Questions — BRITISH ARMY

Infantry Regiments (Committee)

Miss Harvie Anderson: asked the Secretary of State for War whether his consultations regarding a possible move toward larger infantry regiments have now been completed; and if he will make a statement.

The Secretary of State for War (Mr. John Profumo): In February I invited Lieutenant-General Sir Roger Bower to be the chairman of a committee which I set up to study the implications of a move towards the large infantry regiment, and to make recommendations to me on the advisability, the nature and the timing of any changes. The committee has not yet completed its work, and I have therefore nothing at present to add to my statement in the debate on the Army Estimates on 8th March.

Miss Harvie Anderson: Is my right hon. Friend aware that delay obviously causes increasing anxieties in this matter? Can he give an assurance that any such reorganisation will enable all

existing regiments to continue their existence, and that in any future overall amalgamation the Highland Brigade and the Lowland Brigade will be allowed to retain their identity?

Mr. Profumo: I recognise that a question of this sort must inevitably attract speculation, but this sort of examination cannot be rushed. The last thing that I want to do is to intervene in the deliberations of a committee which I have set up to consider the matter. At this stage I would be prejudging the results of that committee's investigations if I gave my hon. Friend any undertaking. I hope that she will appreciate from my reply that there will be a very careful examination, in the way that I envisaged when I spoke in the debate on the Estimates.

Mr. Paget: Surely the right hon. Gentleman does not have to go far beyond simple mathematics to know that he has not enough men to fill the units, and that these units must be reduced, which means that we must have another organisation.

Mr. Profumo: I do not agree with that assertion at all. If the hon. and learned Gentleman goes into the figures I do not think that he will be able to substantiate that allegation. The point is that when, in 1957, the reorganisation was planned, it was not envisaged that this was the perfect solution. All that we are doing at present is to reappraise the situation in the light of experience, for the greatest benefit of the Army.

Miss Harvie Anderson: Does not my right hon. Friend agree that in the case of the Highland Brigade and the Lowland Brigade particularly, the strictures suggested by the hon. and learned Member do not apply? That was part of the point of my Question.

Mr. Shinwell: Would it not lead to adverse criticism as well as militating against recruitment in certain areas if the right hon. Gentleman's intention is—as he seemed to suggest—to disband regiments like the Durham Light Infantry or the Black Watch? Is it advisable to do that?

Mr. Profumo: I have not mentioned the word "disband". I have merely said that I have set up a committee of


very senior officers—all of whom are infantry officers—merely to reappraise the situation which arose out of the reorganisation in 1957. There is no question of disbandment at this stage. I have asked for recommendations from this committee. I do not know what it will recommend, and I do not intend to intervene in a matter which, at this stage, must be primarily for the infantry.

Mr. Rankin: When the situation has been considered and reappraised, and when recommendations are made to the right hon. Gentleman, will the House have an opportunity of considering and debating them?

Mr. Profumo: The committee will not make any decisions; it will merely recommend to the Army Council. I expect that the Army Council will be able to look at this matter in the summer. When I have made up my mind I shall tell the House. The question whether the House debates the matter is not one for me.

Property and Land, Gibraltar

Mr. G. Jeger: asked the Secretary of State for War whether he is aware of the delays in the disposal of his Department's property and land in the town of Gibraltar; and whether he will expedite their sale so as to enable civilian development to continue.

The Under-Secretary of State for War (Mr. James Ramsden): I am not aware of any avoidable delay in the disposal of War Department property and land in Gibraltar.

Mr. Jeger: Is not the hon. Member aware that the Gibraltar Town Council is anxious to push ahead with development—especially housing development—in this very limited space? Is he further aware that some years ago, as a result of a deputation from this House to Gibraltar, which reported on the situation, it was agreed that the War Office should dispose of its land in the centre of Gibraltar? What is holding up that disposal?

Mr. Ramsden: As my right hon. Friend explained in paragraph 16 of the Statement on Defence, we have come to the decision that it is no longer necessary continually to base large land forces

in the Near East. This has meant a reappraisal of the situation in Gibraltar. In reply to the first part of the hon. Member's supplementary question, our plan is to dispose of much of our property and to rebuild on new sites towards the southern end of the Rock, thereby releasing land in the centre of Gibraltar, which corresponds to the local wishes. We expect to press on soon.

Mr. Jeger: Will the hon. Member take the local council into his full confidence in the reappraisal of the situation and in the development of future plans? That is one thing about which it complains.

Highland Brigade

Sir F. Maclean: asked the Secretary of State for War, why he has given instructions that recruiting should be restricted for the regiments of the Highland Brigade; and on what other regiments and arms of the Service such restrictions have been imposed.

Mr. Profumo: By the beginning of April last, the Highland Brigade had reached its full strength, and its recruiting has therefore been restricted to the number necessary to replace wastage. Other regiments and arms of the Service which are similarly restricted at present are the Royals, the Greys, Queen's Dragoon Guards, Queen's Own Hussars, Queen's Royal Irish Hussars, 9th/12th Royal Lancers, 15th/19th King's Royal Hussars, 17th/21st Lancers, 1st, 2nd, 3rd, 4th and 5th Royal Tank Regiment, Green Jackets, R.E.M.E. and R.A.V.C.

Sir F. Maclean: Does my right hon. Friend now realise what a mistake he made in liquidating the two Highland Regiments and will he give an undertaking not to liquidate any more?

Mr. Profumo: I cannot give any undertaking about the future. All I can say is that I hope that I have shown my hon. Friend that the stopping of recruitment to the Highland Regiments is not a question of treating Scottish Regiments differently from any others. They have done very well in their recruiting and have reached their ceiling; and if recruiting goes on at the present speed


we may similarly have to stop other regiments from recruiting.

Mr. B. Harrison: Will my right hon. Friend consider publishing a White Paper so that we may reconcile the statement that he has now made about recruiting with the figures that are published quarterly and also with the statement of the Minister of Defence at meetings such as that recently in Athens?

Mr. Profumo: I do not know why my hon. Friend should want any more information. Neither my right hon. Friend the Minister of Defence nor I have ever been loath to try to give the fullest possible figures about recruiting, and I am glad to say they are still keeping up very well.

Arms and Ammunition (Sale)

Mr. Scott-Hopkins: asked the Secretary of State for War, what were the quantities of arms and ammunition purchased from this country by the United States of America, by the European Economic Community countries and by the Commonwealth, respectively, in the last financial yeas.

Mr. Ramsden: I regret that these figures cannot be disclosed. I would refer my hon. Friend to the reply given by my right hon. Friend the Home Secretary on 4th December, 1956.

Mr. Scott-Hopkins: Would my hon. Friend agree that we are buying more arms and ammunition from abroad than we are selling?

Mr. Ramsden: I would make two points to try to reassure my hon. Friend. One is that the overall balance of these transactions is not unfavourable to us, and the other is that my right hon. Friend's main concern, as being responsible for the Army, is to get the best weapons and equipment that he can for the Army.

Mr. Scott-Hopkins: Will my hon. Friend give an assurance to the House that in the various agreements we have made with our N.A.T.O. allies and E.E.C. countries, these reciprocal arrangements for buying and selling arms are being kept?

Mr. Ramsden: We are continuously keeping an eye on that position.

Warrant Officers

Mr. Buck: asked the Secretary of State for War, if, in view of the marked shortage of trained personnel of an appropriate calibre, he will recommend the amendment of Queen's Regulations so as to remove the bar to promotion to warrant officers I of non-commissioned officers of warrant officer II rank who have attained the age of 42 years.

Mr. Ramsden: My right hon. Friend does not agree that Queen's Regulations should be amended. There is no shortage of warrant officers class II who are qualified for promotion to class I; and there is no age limit for promotion to the acting rank. The Queen's Regulations already provide that the age limit of 42 for promotion to the susbtantive rank may be waived in exceptional cases.

Mr. Buck: I thank my hon. Friend for that full reply. Would he not agree that, in this age of vigorous longevity, it is quite ridiculous to have any bar to promotion at so young an age as 42, and that it is unfair that a person over that age, who in ordinary circumstances would be appointed to warrant officer class I acting rank and who would serve in that capacity for perhaps a long period, should never have any prospect of enjoying the added security of full substantive rank?

Mr. Ramsden: My hon. Friend will recognise that we must have a balanced age structure in the Army. If there is no normal age limit for substantive promotion to warrant officer class I, the average age of promotion of the lower ranks will go up, and to block the promotion of younger men would be bad for both morale and recruitment.

Bank of England Picket

Sir J. Langford-Holt: asked the Secretary of State for War for how many man hours per year officers and men are engaged in the provision of the Bank of England picket from the moment the picket leaves its barracks until its return to barracks; and how much of this cost is borne by the Bank of England.

Mr. Profumo:: The number of man hours per year is about 114,000. The


Bank of England makes a contribution in kind, and the extra cost to public funds is negligible.

Sir J. Langford-Holt: In view of the fact that this operation is not part of the pageantry of the City, that it is a quite unsuitable method of defending a building such as a bank, that Parliament votes money for the purpose of defending the country and that this is a commercial undertaking, will my right hon. Friend consider the abolition of this ancient practice?

Mr. Profumo: I know my hon. Friend's burning interest in this matter, but I do not think that I can give him the undertaking he seeks. The Bank of England considers that this picket contributes towards its security—[HON. MEMBERS: "Oh."]—and I agree. I think that we can only judge by results —and the Bank of England has not been raided since the picket was mounted.

Sir J. Langford-Holt: Would my right hon. Friend consider an application from any other bank which had the same record?

Mr. Profumo: I shall consider any application that my hon. Friend puts to me. I cannot give him any undertaking.

Signalman (Close Arrest and Trial)

Sir J. Langford-Holt: asked the Secretary of State for War why a signalman, details of whom have been sent to him, who was placed in close arrest on 6th November 1961, was not brought to trial until 29th January, 1962.

Mr. Profumo: My hon. Friend the Under-Secretary of State has already written to my hon. Friend and expressed regret that the period before trial was extended. This man, along with four others, was accused of the offence of rape, involving a foreign national. He was tried by general court martial and found guilty of indecent assault. Before the proceedings could take place the case demanded most careful investigation in Germany, and the attendance of local civil witnesses.

Sir J. Langford-Holt: I appreciate all that my right hon. Friend has said. The fact that this was a serious charge should

have made it all the more important for this man to have been brought to trial at the earliest possible moment. Will my right hon. Friend look into the question whether this delay of some thirteen weeks could have been shortened, and will he make sure that, as far as is possible, in future cases delays of this kind will not occur?

Mr. Profumo: In so far as it is possible, I, of course, give an undertaking that in all cases of this kind there will be no undue delay. I have examined the case in detail, and I am sure that the delay was not due to any lack of urgency on the part of those responsible for handling it.

Battledress (Manufacture)

Mr. Stratton Mills: asked the Secretary of State for War if he will make a statement on his consultations with the Secretary of State for the Home Department as to the danger to the security of Northern Ireland in having British Army uniforms manufactured in the Republic of Ireland.

Mr. Profumo: I have consulted my hon. and learned Friend the Minister of State, and we are both satisfied that there is no real danger to the security of Northern Ireland in having British Army battledress manufactured in the Republic of Ireland.

Mr. Stratton Mills: In view of the fact that, during the past ten years, last year was the only occasion when any of these uniforms were manufactured in the Republic of Ireland, as revealed by my right hon. Friend in a Written Answer, may I ask whether there has been a change of policy?

Mr. Profumo: No, Sir. It is only because we could not obtain satisfactory terms for battledress manufactured in the United Kingdom as a whole that we have been forced to go to the Republic of Ireland. Concerning future contracts, if we can get firms in the United Kingdom and, of course, in Northern Ireland, to manufacture uniforms, we shall give them preference. We go abroad only when we cannot get what we need from firms in the United Kingdom.

Troop Training, Kenya

Mr. Shinwell: asked the Secretary of State for War what his plans are for training troops in Kenya.

Mr. Profumo: Kenya is a valuable training area and so long as troops are stationed there they will continue to make use of it for their normal training. Obviously, any arrangements for the British Army to train in the country after independence will depend on agreement being reached with the Government of Kenya, and it is too early for me to comment on that possibility.

Mr. Shinwell: Is it true that there is to be an increased concentration of troops for training in Kenya? Should that be so, is it not very desirable that we should not experience any difficulty as a result of the new dispensation and that therefore we must be extremely careful that we have their consent?

Mr. Profumo: I apologise to the right hon. Gentleman. I did not catch the first part of his supplementary question, which made the whole point.

Mr. Shinwell: I asked, is it true that there is to be an increased concentration of troops in Kenya for training purposes?

Mr. Profumo: No. I am not aware of any increased concentration in the training of troops in Kenya. What I said represents what we hope to do at present. We hope to go on training in Kenya which, as the right hon. Gentleman knows, is a very valuable area.

Mr. F. Harris: Will my right hon. Friend take into account that it is very much in the long-term interests of people of all races in Kenya—I repeat of all races—that these bases and our troops should remain there as long as possible; and that it is particularly to the long-term benefit of the economy of Kenya?

Mr. Profumo: I hope that my hon. Friend will understand if I do not comment on the political aspects. I should prefer not to go further than to say what I have in answer to the Question.

Secondments to Ghana (Termination)

Sir E. Errington: asked the Secretary of State for War whether he will make some payment from War Office

funds to those officers and other ranks of the British Army who were seconded to the Ghana Government and had such secondments prematurely terminated with resulting loss.

Mr. Profumo: My right hon. Friend the Secretary of State for Commonwealth Relations is discussing with the Ghana Government what compensation they will pay to these officers and men. We hope that a fair settlement will be reached.

Sir E. Errington: My Question was whether something could be done from the War Office. Is my right hon. Friend aware that this matter has gone on for months and that there are substantial amounts outstanding? Will not the War Office do something about it even though it is not possible to get a settlement from Ghana?

Mr. Profumo: With respect to my hon. Friend, I think that that is still a hypothetical question, since the negotiations with Ghana are at present continuing.

Sir E. Errington: Does my right hon. Friend realise that this has been going on for months; that people are spending out of their own money, both other ranks and officers, and that something should be done?

Mr. Profumo: I have said that we are hoping for a fair settlement. I do not think that it would be helpful for me to say more while the negotiations are going on.

Mr. Paget: But let us clear this up. Surely, these people are our chaps. They went there at our request and we are responsible. Let us make it clear that that is so.

Mr. Profumo: I have no doubt whose "chaps" they are. I am merely saying that since the negotiations are going on with the Government of Ghana, it would be prejudicial to them if I started to say what I thought would happen afterwards if they were not successful.

Expenditure, Scotland

Mr. Ross: asked the Secretary of State for War what percentage of the estimated expenditure for 1962–63 on


research, design and development, Vote 7, II, H, will be spent in Scotland.

Mr. J. Bennett: asked the Secretary of State for War what percentage of the estimated expenditure on ammunition, Vote 7, II, D, for 1962–63, will be spent in Scotland.

Mr. Bence: asked the Secretary of State for War what percentage of the estimated expenditure on general stores, Vote 7, II, B, for 1962–63, will be spent in Scotland.

Mrs. Cullen: asked the Secretary of State for War what percentage of the estimated expenditure on clothing, Vote 7, II, A, for 1962–63, will be spent in Scotland.

Mr. McInnes: asked the Secretary of State for War what percentage of the estimated expenditure for 1962–63 on engineering stores, Vote 7, II, G, will be spent in Sootland.

Mr. Rankin: asked the Secretary of State for War what percentage of the estimated expenditure for 1962–63 on technical stores, Vote 7, II, F, will be spent in Scotland.

Mr. Lawson: asked the Secretary of State for War what percentage of the estimated expenditure for 1962–63 on mechanical transport and aircraft, Vote 7, II, E, will he spent in Scotland.

Mr. Ramsden: At this time of year it is not possible to make accurate estimates, because the allocation of work will depend on the results of tendering. Scottish firms will of course get the same opportunity as others to tender for items which they are in a position to produce.

Mr. Ross: On Question No. 24, the cost of the stores involved amounts, I believe, to about £5¾ million. Will the hon. Gentleman bear in mind that that is only about a quarter of the £20 million to be provided by this House for the War Office to spend on design, research and development? Will he bear in mind the unemployment difficulties facing the Secretary of State for Scotland and help out as much as possible by ensuring not only that a proportion of the stores is bought in Scotland but that some of the experimental work and the contracts to be placed go to Scotland?

Mr. Ramsden: I must remind the hon. Gentleman that, relatively speaking, there is not much capacity in Scotland for providing the type of equipment which the Army needs. But where the capacity does exist, firms in Scotland get the same opportunity to tender as firms in other parts of the country.

Mr. J. Bennett: Will the Minister bear in mind that the Army is spending about £13½ on ammunition, which is about £1½ million more than last year, and also that Scotland is well equipped to fulfil whatever the Government may demand? Will he also bear in mind the unemployment position in Scotland, as he was asked to do by my hon. Friend the Member for Kilmarnock (Mr. Ross)?

Mr. Ramsden: The hon. Gentleman is interested in ammunition, and I can tell him that Scotland has capacity for the manufacture of ammunition propellants. All our immediate requirements for propellants are supplied from Scotland. Most of the capacity for supplying the remainder of our ammunition requirements is concentrated in the Royal Ordnance factories in England and Wales.

Mrs. Cullen: Where it is possible to do so, will the hon. Gentleman ensure that orders and contracts are placed in Scotland where there are both the facilities and the labour to fulfil them?

Mr. Ramsden: Yes, Sir. So far as Army clothing is concerned, and that is what interests the hon. Lady, although most of the capacity is in London, Lancashire and Yorkshire, such Scottish firms as supply the type of goods the Army require get the opportunity to tender. And, of course, in Scotland they make the kilt.

Mrs. Cullen: Will the hon. Gentleman remember that during war time khaki was provided and that we can do the same in peace time?

Mr. McInnes: In reference to Question No. 28, may I ask whether the hon. Gentleman is aware that the current estimate is approximately £1 million less than for the previous year? As this relates to rolling stock and is therefore a vital matter to Glasgow, for example, can he give any explanation of the large decrease?

Mr. Ramsden: Not without notice.

Mr. Rankin: Will the hon. Gentleman keep in mind that, when it comes to raising money, Scotland contributes about one-ninth of the total income which the Government spend? And when it comes to spending money, will he try to preserve that proprotion? In dealing with the £24 million for technical stores, will the hon. Gentleman see that Scotland gets her just share?

Mr. Ramsden: I think that the tenor of my Answers shows that we do try to see that Scotland gets her fair share. May I remind the hon. Gentleman that in 1960–61, in relation to the type of stores in which he is interested, substantial orders were secured by Scottish firms for Twynham hutting, about 40 per cent. of engineer stores expenditure being incurred in Scotland.

Mr. Lawson: Will the hon. Gentleman explain why he is unable to give us this information now, whereas on a previous occasion, at about the same time of year, he was able to give the information? Does not that suggest that the position regarding the amount of money spent in Scotland is so bad that the Government are not prepared to reveal it? Will the hon. Gentleman bear in mind that we are not interested merely in Scotland getting a share, but that we believe the Government ought deliberately to spend in these areas of high unemployment in order that the Government policy of developing these areas may be carried out? Will he keep that point in mind?

Mr. Ramsden: Replying to the first part of the supplementary question, I can assure the hon. Member that the reason I gave is the one that stands, that at this stage of the year, before tendering is further advanced, we cannot give the information being sought. In reply to the second part of the supplementary question, about whether we may relax Government policy about where money is spent, that is a general question outside the responsibility of my right hon. Friend. Perhaps the hon. Gentleman would pursue it with the President of the Board of Trade.

Mr. Lawson: May I say to the hon. Gentleman's right hon. Friend, who is sitting beside him, that if he keeps in

mind the point I have made about the Government deliberately spending in these areas, a great deal can be done to carry out the Government's policy for the better distribution of industry? Will he put that point occasionally to his colleagues in the Cabinet?

B.A.O.R. (Strength)

Mr. Paget: asked the Secretary of State for War what steps he is taking to bring the British Army of the Rhine up to a strength of 55,000.

Mr. Profumo: The regular strength of B.A.O.R. is rising steadily. I am currently giving renewed consideration to ways and means of hastening this process. A lot depends on our recruiting campaign.

Mr. Paget: Was any undertaking given at Athens as to a particular date when we might comply with our treaty obligations?

Mr. Profumo: My right hon. Friend the Minister of Defence has made this perfectly clear. If the hon. and learned Gentleman has read the synopsis of his Press conference on 9th May he will see that my right hon. Friend said:
We are not ready to give any target dates at this stage.

Mobile Reserve

Mr. Paget: asked the Secretary of State for War whether any part of the mobile reserve in this country is earmarked for service in Thailand following Her Majesty's Government's recent policy decision in this regard.

Mr. Profumo: No, Sir.

Mr. Paget: Should they be required, are they capable of going there?

Mr. Profumo: That is a bit hypothetical, but we have a theatre reserve in South-East Asia and we have a strategic reserve in this country designed for use anywhere in the world at short notice. It does not have to be specially earmarked for service.

Mr. Emrys Hughes: In view of the fact that France is showing common sense and not sending her troops there, will the Secretary of State give us an assurance that none will be sent by us?

Mr. Profumo: The hon. Gentleman will have to put that Question on the Order Paper if he wants an answer.

Oral Answers to Questions — SCOTLAND

Winter Keep and Permanent Grassland Improvement

Sir J. Duncan: asked the Secretary of State for Scotland if he will give an outline of his proposals for grants in respect of winter keep and permanent grassland improvement as far as they affect Scotland.

The Secretary of State for Scotland (Mr. John Maclay): Discussions on the details of the schemes have not yet been completed, and I regret I cannot add at present to what has been already said.

Sir J. Duncan: Is my right hon. Friend aware that I asked only for an outline of his proposals? Can he be a little more specific? Does he realise the importance of getting this legislation through before the end of M.A.P.?

Mr. Maclay: The winter keep scheme is intended to give direct encouragement to the provision of winter keep in our hill and livestock rearing areas, since it is winter keep which so largely determines stocking capacity in these areas. It is hoped that the scheme will hold a fair balance between winter feed from tillage crops and from grass.

Mr. Hoy: The right hon. Gentleman will realise that this is of tremendous importance to Scotland and to the Scottish farmer. It is important that we get the proposals contained in this suggested scheme before, as the hon. Member for South Angus (Sir J. Duncan) has said, M.A.P. goes out of action altogether. It is of first-class importance.

Mr. Maclay: I am very well aware of the time factor involved, but I cannot commit myself on dates for legislation. However, the importance of farmers knowing what is happening is fully appreciated.

Mr. Wolrige-Gordon: Is my right hon. Friend further aware of the importance of this measure in areas like Aberdeenshire which concentrate on the production of meat but where, owing to the unprofitability of the oat crop now, in-

creasing acreages are going down to grass?

Mr. Maclay: I am fully aware of the importance of this to all the areas involved.

East Kilbride

Mrs. Hart: asked the Secretary of State for Scotland how many houses have so far been built in East Kilbride; how many are yet to be built; and how many of the latter are intended for occupation by children of present tenants when they grow up, marry, and wish to settle in their home-town.

Mr. Maclay: The Development Corporation has already built 8,830 houses, and about 9,000 more are likely to be needed to house the planned population of 70,000. This total will no doubt include a considerable number of children of present tenants, but no specific number of future houses is earmarked for this purpose.

Mrs. Hart: Is it not time that the Secretary of State gave very serious consideration indeed to the question of the future natural growth of East Kilbride? As at least half the children born in the town are likely to want to settle there, if the target figure remains at 70,000, as the right hon. Gentleman has indicated, no more houses ought to be built in East Kilbride at this stage but the rest should be earmarked for future growth.

Mr. Maclay: We are getting into some fairly complicated mathematics in this operation, because there are many variable factors involved—for example, the age structure of the population still to come, the types of future industrial employment, and the personal choice of individuals. However, we are aware of the problem raised by the hon. Lady. Although 70,000 is the limit on the present plans, it is not necessarily the all-time limit of the town.

Mrs. Hart: What is the all-time limit?

Mr. Maclay: One cannot tell at this stage.

Mrs. Hart: asked the Secretary of State for Scotland if he is aware that there is at present no community centre in the new town of East Kilbride; and,


in view of the financial strain placed upon the local authority by its school building programme in the town, what steps he proposes to take to meet the urgent and growing need for community facilities.

Mr. Maclay: I visited East Kilbride on 4th May and I am well aware of the desire for community facilities there. This is mainly a matter for the local authorities and the local voluntary organisations. One scheme for a public hall proposed by the district council has been approved in principle and consultations about another are proceeding. Any further proposals from the local authorities or local voluntary organisations will be most carefully considered and where practicable supported to the full extent of our existing powers.

Mrs. Hart: Is the Secretary of State aware what nonsense he is talking when he even suggests that the local authority in Lanarkshire might be able to contribute towards the cost of community buildings? Is he not very well aware of the tremendous strain being put on the local authority by the school building programme? Is he aware that voluntary organisations in East Kilbride cannot possibly raise an amount of money even substantial enough for the Development Corporation to make up the rest? Is it not time that he himself took a direct financial step to assist in the solution of this problem, of which he is fully aware?

Mr. Maclay: I am concerned about the problem. The hon. Lady knows the extent of my powers to assist. She knows that local authorities and voluntary organisations are working on these problems with my Department at the moment.

Oral Answers to Questions — ROYAL AIR FORCE

Queen's Flight

Mr. Emrys Hughes: asked the Secretary of State for Air on how many occasions during the past three months aircraft of the Queen's Flight have been in use; and for what purposes.

The Under-Secretary of State for Air (Mr. W. J. Taylor): In the last three months aircraft of the Queen's Flight

have made thirty Royal flights and eight other flights carrying senior Ministers and other important passengers.

Mr. Hughes: How many aircraft are used for this purpose? Does not the Under-Secretary think that some co-ordination could be effected and money saved if these craft were placed at the disposal of the other nationalised industries?

Mr. Taylor: With regard to the establishment, at present the Queen's Flight consists of 4 Herons—1 Heron C.3 and 3 C.4 types—2 Whirlwind helicopters and 1 Chipmunk. The Flight is established primarily for short-range flights. If the hon. Member wants any information about extending the use of the Queen's Flight for other purposes, he must table a detailed Question.

Sir J. Duncan: In his Answer my hon. Friend referred to senior Ministers and other important people. Does he regard Ministers as all that important?

Mr. Taylor: That is a matter of opinion.

Mr. Shinwell: Were any aircraft of the Queen's Flight recently used to convey certain high-ranking people—not Ministers—to a wedding in Greece? Was Lord Mountbatten transported in that fashion?

Mr. Taylor: That is a question which should be put on the Order Paper so that I can give a detailed Answer.

Thor Missile Bases

Mr. Mason: asked the Secretary of State for Air if he is having discussions with the Americans with a view to reviewing the need for the continuance of Thor missile bases in this country and to agree upon a phased run down.

Mr. W. J. Taylor: No, Sir.

Mr. Mason: Why not? Is not the hon. Gentleman aware, first, that this is an antiquated weapon system; secondly, that it is highly vulnerable; thirdly, that it is an aggressive weapon and not a strike weapon; and, fourthly, that it has already cost us £12 million to maintain over the past twelve months? Is it not time that a review was made so that we can gradually dismantle it?

Mr. Taylor: All these supplementary questions are irrelevant to the Question on the Order Paper. Our agreement with the United States Government on the Thor weapon was published as a White Paper in February, 1958, for a period of
not less than five years.
It does not terminate at the end of this period and we shall have discussions with the American Government when we think they are necessary.

Mr. Mason: Is not the hon. Gentleman aware that his overlord, the Minister of Defence, indicated in the last defence debate and his right hon. Friend the Secretary of State for Air has indicated recently that it will be reviewed from time to time and not necessarily at the end of the five-year contract? Is it not about time that it was reviewed?

Mr. Taylor: The hon. Gentleman could not have stated the case better. It is being reviewed from time to time.

Mr. Mulley: Surely the Under-Secretary is not putting the proposition to the House that, if a Department makes a mistake, our defence policy must be geared to that mistake for ever and a day? Does he not recognise that there has been a great change—at any rate, one hopes that there has been a change—in the assessment of nuclear weapons since the agreement was concluded? Will he not look at this again to see whether these missiles fit into our defence requirements? It is not a question of when we signed an agreement.

Mr. Taylor: The hon. Gentleman is quite right—circumstances do change. The object of reviewing these matters from time to time is to take into account the changed circumstances. The fact is that at this moment of time we are not convinced that any change is necessary. We shall go on reviewing this matter from time to time.

Oral Answers to Questions — TRANSPORT

Motor Cars (Safety Belts)

Mrs. Castle: asked the Minister of Transport in how many of the fatal and non-fatal road accidents, respectively, which took place over the Easter week-

end safety belts were in use; of what types these were; and if he will issue an analysis of the effects of safety belts in preventing or diminishing injury in the light of this evidence.

The Parliamentary Secretary to the Ministry of Transport (Mr. John Hay): I regret that the information asked for is not available.
The Road Research Laboratory has recently examined the effect of safety belts in a small sample of car accidents and has estimated that they reduced the number of fatal and serious injuries by about half.

Mrs. Castle: Is it not very important to have this information? Would it not encourage the use of safety belts? Would it not help also to show which were the most effective types of safety harness and enable Parliament to decide whether it needed any powers to control the sale of defective harness, types and quality?

Mr. Hay: The difficulty we are up against in obtaining this information is that we rely upon the police for information about what happens in accidents and not what causes accidents or what factors prevented injuries from occurring or from being serious. However, I will look at this and see if anything can be done, but we are very well aware of the value of safety harness. Arrangements are being made for all Government passenger cars and light vans to be fitted with safety belts.

Mr. Strauss: Can the hon. Gentleman give us any further information about when safety belts with effective fitting equipment will be made compulsory for new cars?

Mr. Hay: No. We are at the moment engaged in discussions on an international basis to obtain the right standards for safety belts. I cannot give any further information about that without notice.

Mr. Slater: Further to the supplementary question asked by my right hon. Friend the Member for Vauxhall (Mr. Strauss), is it Government policy that these belts shall be compulsorily fitted on all new cars? Is not the right of choice to come into the picture?

Mr. Hay: No, Sir. It is not that the Government believe that the fitting of safety belts should be compulsory, but simply that there are a vast number of different types of safety belt. Some of these are believed to be excellent, and some are not quite so good. We believe that it is best for these matters to be settled on the basis of a British Standard as soon as we can get international agreement on the best type. We can then review the whole question.

Mr. Channon: Would not my hon. Friend consider taking power in the Road Traffic Bill [Lords] to make safety belts compulsory as soon as the Government feel that they have a satisfactory type? Would he not agree that that would go far further towards reducing accidents than some of the extra powers now sought in the Bill, which are proving so controversial?

Mr. Hay: We have to take this a little more slowly than my hon. Friend would like. I think that we should get the right type of belt before we talk about policy.

Oral Answers to Questions — STANDING COMMITTEE B (SITTINGS)

3.30 p.m.

Mr. Speaker: The House will, or may, recall that I said yesterday, in response to a point of order about Standing Committee B, raised by the hon. Member for Hamilton (Mr. T. Fraser), that the argument that he put to me—I quote my words:
… would be more properly addressed to the Chairman in Committee as a ground for adjourning when the Committee meets …".—[OFFICIAL REPORT, 22nd May, 1962; Vol. 660, c. 233.]
I did not, of course, attempt to indicate what proceedings would then follow. I hoped that I had used words to make that plain enough. It now appears from the HANSARD of Standing Committee B relating to yesterday afternoon, which has been published now, that my remarks were interpreted as suggesting a course of action to be followed by the Committee.
I am very sorry to think that my words were capable of bearing this interpretation. I hope that I have made my intention quite clear.

Orders of the Day — FINANCE BILL

Considered in Committee [Progress, 22nd May].

[Sir WILLIAM ANSTRUTHER-GRAY in the Chair]

Clause 14.—(CHARITIES, SUPERANNUATION FUNDS, AND OTHER SPECIAL CASES.)

3.32 p.m.

Mr. Geoffrey Stevens: I beg to move, in page 21, line 18, at the end to add:
(6) There shall be exempt from tax chargeable under Case VII any gain accruing to an Investment Trust Company, other than one which is under the control of five persons or less, the shares of which are publicly quoted on a recognised Stock Exchange in the United Kingdom, and which by its Articles of Association provides that surpluses arising from the realisation of investments shall not be available for the payment of dividends.

The Chairman: I think that with this Amendment we can take that in page 21, line 18, at the end to add:
(6) There shall be exempt from tax chargeable under Case VII any gain accruing to an authorised Unit Trust as defined by section sixty-nine of the Finance Act. 1960.
and that in page 38, line 1, to leave out from beginning to end of line 17 and to insert:
and in section fifteen of the Stamp Act, 1891, the words 'Settlement … The settlor' in the table set out at the end of subsection (2), and in the said First Schedule the word 'Settlement' in the heading beginning 'Declaration', shall be deleted.

Mr. Stevens: Yes, Sir William.
Clause 14 is the Clause which exempts from a charge to tax under Case VII:
Charities, superannuation funds, and other special cases.
My Amendment deals with certain investment trust companies which, I submit, come within the category of special cases. My right hon. and learned Friend the Chancellor has on several occasions since April of last year made perfectly plain the principle underlying these Case VII assessments, and I shall quote from two of his speeches. I quote, first, from his Budget speech of 17th April, 1961, when he said:
Of course, individuals or firms, who make a business of seeking capital gains on the Stock Exchange or in property or other deals, are, in fact, trading and are liable to the full


rates of Income Tax, Surtax or Profits Tax on the profits from such activities. People who are genuinely investing come into a different category."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 821.]
My submission is that people who subscribe to the share capital of investment trust companies of the type covered by this Amendment are genuinely investing.
Again, on 23rd October, 1961, my right hon. and learned Friend said:
I have also undertaken that certain transactions such as short-term deals on the Stock Exchange and in property which are intended to bring in spending money and incomes will be taxed as such."—[OFFICIAL REPORT, 23rd October, 1961; Vol. 646, c. 628.]
I submit that the short-term gains of the investment trust companies I have in mind do not bring in spending money or incomes.
I have referred to certain types of investment trust companies, and there are three very important provisos in my Amendment. First, these investment trust companies must be under the control of more than five persons. Secondly, their shares must be publicly quoted in a recognised United Kingdom Stock Exchange. Thirdly, their articles of association must prohibit surpluses from the realisation of investments being used in payment of dividends. When some of my hon. Friends saw the Amendment on the Notice Paper, they said, "You are just opening the door wide. Rich men will form themselves into investment trust companies, and drive a coach and horses through the Bill." I think that those three provisos are the answer to that suggestion.
It is not without interest that the first two of the provisos—that control must be in the hands of more than five persons, and that there shall be a public quotation—are hallowed by tradition and precedent. They are two of the major considerations in Section 256 of the Income Tax Act, 1952—one of the Sections dealing with the circumstances in which the profits of a limited company can be subject to Surtax assessment. Those two provisos have stood the test of time, and are fair and reasonable.
It is the fact that investment trust companies of the type I have in mind—which account for a very large proportion of the total amount invested in investment trust companies—rarely, if ever, sell securities for the capital gain. Their prime object is income yield, not capital gain. It may well be asked, in the case of such investment trust company, "Why sell within the six months limit? Why not hold for six months and one day and then no question of a charge under Case VII will arise?" There are circumstances, however, and not unusual ones, in which investment trust companies of this kind may find it exceedingly desirable to sell within the six-month period and, very often, find it essential to sell within that period if they are to keep within the law.
In the first place, they may, and commonly do, apply for a substantial block of shares of a new issue. If that new issue is a success and heavily oversubscribed, it is common farm for the larger application to be severely scaled down. In that case, an investment trust company may well find itself with a very small allocation of the new issue, and it is quite uneconomic and inefficient for such a company to hold a small amount of any one particular investment. In such circumstances, it is obviously in the interests of efficient administration and management that it should be able to sell that small holding as quickly as possible.
Again, that company may find itself required to sell in order to keep within the law. It is very common form for the articles of association of such companies to provide that not more than 5 per cent. or 10 per cent. of their total capital shall be held in one particular security. If there is a rights issue in respect of one of the investments in the company's portfolio, it may well take the investment beyond that 5 per cent. or 10 per cent. An investment trust company in that position, may, therefore, be required to sell. Or it may be that one of the companies represented in its portfolio amalgamates with one or more different companies, with the result, again, that the proportion goes


above that provided by the articles of association and, again, it is forced to sell. There are two instances whereby they may be forced to sell within the six months' limit.
Another point that has been made to me is that the Amendment states, in effect, that they must not distribute these capital gains as dividends but that there is an answer to that, for all one need do is to liquidate the company and make a capital distribution. I do not think that serious consideration need be given to that point. It is not a practical proposition and a company might do it once, but it would certainly not do it again for obvious reasons. If a company intended to try to do that year after year the company to be liquidated would have to reform and there are three objections to it being done more than once.
First, if any company tried to do that the chances on the second occasion of its getting a public quotation on the Stock Exchange are remote. Secondly, obviously any company which behaved in that way would soon lose the confidence of the investing public. Thirdly, and above all, any dodge or jiggery pokery of that sort would be expensive because there would be the cost of reforming the new company out of the ashes of the old, stamp duties, and so on, and the charges generally would almost certainly extinguish any possible tax advantage that might be gained. I do not think that the three safeguards I have mentioned would leave any possibility of yet another loophole being provided for people to dodge the tax that they should pay.
The trade body concerned in this matter is the Association of Investment Trust Companies and no company is eligible for membership unless it complies with the three provisos I mentioned. As I say, these companies are not organisations for speculators, but for genuine investors, including the small savers, and to leave their short-term gains charged to tax under Case VII would he entirely out of keeping with what the Chancellor of the Exchequer has said on more than one occasion. It would be completely out of keeping with the principle involved and I hope, therefore, that the Government will accept

the Amendment with the ready spirit with which they accepted two other Amendments of mine yesterday.

Mr. G. R. Mitchison: There appears to be an ambiguity here. If one takes the words in the Amendment,
… other than one which is under the control of five persons or less …",
and puts them in brackets, then the words,
… the shares of which are publicly quoted …",
and the reference to the articles of association, apply to the investment trust company, not to the excepted company. That is one way of reading it. The other way is that it might read "other than one" and all the rest of it refers to the excepted company. Have I made myself clear?

Mr. Stevens: I think that I am seized of the hon. and learned Gentleman's point. I tried to make it clear in my remark that the investment trust company which I have in mind must comply with all of the three provisos and not with just one or two of them. It seems incredible, but it may be possible that my drafting on this occasion may not be up to my former standard.

3.45 p.m.

Mr. Edward du Cann: I wish to underline the remarks of my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens) and to say how strongly I agree with the logical and persuasive case that he advanced. There is another Amendment on the Notice Paper, in the names of myself and some of my hon. Friends, which deals with a somewhat similar though separate case, that of unit trusts.
I should, at this stage, declare my interest in this matter. I was responsible for forming the first unit trust management company to be launched in the United Kingdom since the last war and I am still responsible for managing that company, which has now built itself up in the short period of four-and-a-half years to a position where it serves about 160,000 shareholders with total assets of £21 million. I hope that it will be appreciated, therefore, that if there is one thing I can fairly claim it is that


I am speaking on behalf of a substantial body of small investors and that there is no sort of speculative sense involved here.
As I understand, the proposals in Clause 9 and the subsequent Clauses are designed to catch speculators. If it is true to say that an investment company can in no way be considered a speculative enterprise, then still less can a unit trust be considered as such. The total assets of unit trusts in the United Kingdom are now approaching £250 million and the total number of investors is nearly 750,000. I hope that my hon. Friends, and especially hon. Gentlemen opposite, will think it appropriate that there should be some of us in the United Kingdom who are endeavouring to do something definite about the propagation of a property-owning democracy rather than merely to talk about it.
When I declare my interest in this matter I do so with no sense of apology but, indeed, with a sense of pride. These are genuine investors. My hon. Friend the Member for Langstone detailed a number of cases where managers of investment trusts—and the same applies to unit trusts—may be obliged, for sound, sensible investment reasons, to dispose of securities within a short period of time. No one is suggesting that they are speculating by doing that, for they are merely doing their duty to manage competently the funds with which they have been entrusted. The end result of any individual transaction of this sort may be that the individual shareholder in the case of a unit trust may gain about one-tenth of ld. and these are the people who will, if this legislation becomes an Act in its present form, be caught for tax under the present drafting.
I hope that my right hon. and learned Friend may consider that this is not right and that there is a genuine case for considering afresh the position of these people. There is, also, the possibility that a small investor may be obliged to pay tax twice. To illustrate this, suppose the managers have made a fairly rapid transaction in the underlying securities of a unit trust for good investment reasons. The trust then pays tax on

that. Take the case of a person who is a subscriber to a unit trust savings scheme—I do not think that there can be any more genuine a long-term investor than he—who has subscribed, say, 10s. a week, or £1, or £2 a month, and whose money is used over a period of years to buy shares. He must, naturally, be a most genuine sort of investor.
Suppose that he subscribes 10s. a week to a savings scheme, and, at the end of a period, has £75 subscribed. In the meantime, his income will have been reinvested and at the end of the period he may have realised his objective and may wish to sell the shares. His first two and a half years' subscriptions are exempt from the provisions of the Bill, but his last six months are caught and should his realisable price be above the prices at which he acquired the shares he will be obliged to nay tax on that gain. He is in the position of being a genuine saver and is obliged to pay tax—that by itself, I believe, is quite wrong—and it may be also that he is having to pay tax twice on the same transaction. I hope that these points will merit the serious attention of my right hon. and learned Friend, because they disturb me substantially.

Mr. Douglas Jay: Would the Amendment exempt altogether from the tax all investment trust companies and unit trusts whose shares or units are publicly quoted?

Mr. du Cann: I am glad to have an opportunity to explain any of these matters. In the United Kingdom there are 52 unit trusts. Very few unit trusts have a Stock Exchange quotation. There is an academic argument whether this has advantages or disadvantages to the subscribers to the schemes. The suggestion in the Amendment in my name and the names of my hon. Friends is that all authorised unit trusts should be exempted from the provision of this Clause and from the capital gains tax altogether.
My hon. Friend the Member for Lang-stone raised the point whether persons might form themselves into investment companies to avoid tax. It will be appreciated that an authorised unit trust has received Board of Trade approval. It has, therefore, complied with a number of extremely stringent regulations.


In particular, it will have a trustee of undoubted standing, for example, one of the joint stock banks. These matters apply whether the units of the unit trust are quoted on the Stock Exchange or not.
Any authorised unit trust will be a public venture and is, therefore, likely to have a total number of shareholders which will vary between 5,000, at the lowest, or, in the case of one trust to which I am responsible, no fewer than 65,000. This is not a case in which it might be thought that it would be possible for private persons to avoid the incidence of tax by bringing themselves within the ambit of authorised unit trusts.
I was talking about the double incidence of tax which I believe to be an important point. It is very fashionable, on this side of the Committee, to quip hon. Members opposite with the suggestion that the Opposition in general do not realise that we live in changing times. In particular, I remember a speech which the Prime Minister made when he referred to the Opposition as believing that they lived in a period when the people who drove motor cars were Edwardian ladies, wearing veils, and men with cloth caps which were turned the other way round.
I sometimes feel—and it is appropriate that I should say these things in the presence of my right hon. Friend the Chancellor—that we on this side of the Committee live in that kind of situation, too. I have always believed, and surely it must be right, that the worker who, by hand or by brain, contributes to the prosperity of British industry should be able to share in the profits, too. I believe that every scheme designed to that end must be a scheme which deserves to command the unqualified support of the whole Committee and, indeed, of the populace outside. During the last several years, one of the most significant factors in our economy has been the tremendous increase in personal savings, now running at over £2,000 million a year, and the even greater company savings.
The question which I should like to ask my right hon. and learned Friend is simply this: is it right for the Committee to say to the people, "We believe in savings, we will support what you are

doing and we will give every assistance"? Or is it right for the Committee to agree to put obstacles in the way of further advance? They may perhaps be tiny obstacles which do not add up to a great deal, but I hope that I carry the majority of the Committee, on both sides, with me when I say that they should not be placed there at all.
I should infinitely prefer my right hon. and learned Friend to go to the country and say, "Not only do we talk about savings in the House"—in the way in which the Chief Financial Secretary did yesterday—"and not only are we in favour of them, but more: we will not put obstacles in their way and we will do all that we can to encourage them."

Mr. Raymond Gower: My hon. Friends the Members for Portsmouth, Langstone (Mr. Stevens) and Taunton (Mr. du Cann) have put the case very forcibly and it is not necessary to elaborate on it, but there are one or two points which I want to emphasise.
From time to time all Treasury Ministers have said that they are very much in favour of a wider dispersion of property ownership. That is a profession with which almost everyone on these benches and many in other parts of the Committee will agree. We have also continually heard it repeated that it is most desirable that there should be the utmost encouragement for the small and medium investor.
Both these questions arise when we consider the Amendment. If my right hon. and learned Friend does not accept the case for this exemption, and if he insists that the Finance Bill shall go forward in this respect in its present form, then I respectfully submit to him that he will do definite disservice and harm to the investment trust movement, and particularly to the unit trust movement.
My hon. Friend the Member for Taunton has given figures showing the large number of people who are investing in this way, but the figures are still much smaller than many of us would like them to be. It can justly be said that this kind of investing by the small investor in the industrial future of this country is in its very early stages, and the Committee would perform an ill-service if, by its attitude to this question


today, it gave any impression that we are not wholeheartedly behind beneficial movements of this kind.
We want to see a much wider dispersion of property ownership in this country. We want to see a far larger number of people of modest means investing in this way. Surely the best way to achieve these desirable ends is to show by our legislative actions that we are prepared to support the ideas which we sometimes put in our speeches. This is a matter of far greater importance than might appear from a superficial examination, for it goes to the very root of this new age to which my hon. Friend the Member for Taunton referred. I sincerely hope that my right hon. and learned Friend will admit the importance of it and the beneficial effects of the extension of this kind of investment and will not by his actions today and his decision on the Amendment suggest to the Committee and the country that he is not wholeheartedly behind such investments.

Mr. Douglas Houghton: I rise to express some doubt on the Amendment. This tax is not in terms a tax on speculative gains; it is a tax on gains from the acquisition and disposal of assets. The Chancellor decided that for the purpose of this tax it will be levied on activities which, in general, are of a speculative nature, but he has not shaped the tax with a view to inquiring into the motives of people who make investments at any time. He has let the test of time decide whether it shall come within the scope of this tax, not the motive. The period which elapses between the date of acquisition and the date of disposal is the test.
Many genuine investors will be caught by this tax. They will make an investment with the full intention of keeping their money there as part of their savings, but circumstances will arise, probably very shortly after they have made the investment, which compels them to realise the investment. If they make a capital gain on so doing within the six months' period, they will be liable to tax on their capital gain, irrespective of their motives which prompted them to invest or which prompted them to sell. We have to look at the tax in

this context of the general principle of the time which elapsed between acquisition and disposal.
4.0 p.m.
I know that the Chancellor of the Exchequer could very well argue that I am really out to catch speculative activities, and that is my main purpose. I may catch many people who make gains quite innocently, but it will be incidental to the conduct of their private affairs. The Chancellor may regard that as unfortunate, but the main purpose is to catch speculative activity where people add to their income in the course of activity of this kind.
The Chancellor may say that in looking at corporate bodies and institutions he does not want to penalise unnecessarily bodies which are encouraging general investment and are not themselves in the normal way in these speculative markets. Yet in this connection it seems to me that it is not a question of what a subscriber does or intends to do. The test here is what the unit trust does.
Here again, there is the time limit. If the investment trust, in the course of the acquisition and disposal of its investments, makes a capital gain on the disposal of particular assets within the specified period, is there any strong case for exempting it from tax? The hon. Member for Taunton (Mr. du Cann) argues that this is a democratic thing and that the people who will ultimately benefit, the people who subscribe to investment trusts, are, on the whole, not rich.
The hon. Member argues that this is part of an extension of the concept of a property-owning democracy, but I am sure that he will admit that even if the capital gains are not distributed as dividends there will be a permanent expansion of capital which cumulatively will reflect itself in the higher value of the unit invested in the trust. Therefore, a capital benefit will accrue to subscribers in due course. In advertisements for investment trusts, have we not read of the rise in the value of the unit over a period of years, which surely is a revaluation of the capital value of the assets of the trust?

Mr. du Cann: Perhaps I could ask the hon. Member two questions. Has he not also read in unit trust advertisements the point which many of us are extremely concerned to bring out, namely, that share prices can fall as well as rise? Although there may be a small appreciation, in many cases perhaps of one-tenth of ld. per share, it is quite possible for this to be lost as well. I agree that this is a hard case, but does the hon. Member not agree with me that hard eases make bad law?

Mr. Houghton: I have never understood that saying. I have heard it so many times, but I have never seen it applied to anything that convinced me.
This is the final question. Are the activities of the investment trust of such a nature that the Chancellor will be justified in leaving them outside the scope of this tax? Are they in the corporate form so distinguishable from comparable activities that may be undertaken by individuals that they should be left out of the tax altogether? I am doubtful about that. In administering tax and in introducing new taxes we are constantly looking for good cases to leave out of the scope of the tax, whether because it might bear hardly on someone, or in relation to the purpose of the tax, or in relation to taxable capacity it would not be a good thing to leave those people out.
I am not convinced that this applies to investment trusts as, for example, in the case of charities. There are other equally worthy bodies. What about the trade unions which go in and out of the stock market? They will be caught unless the investments are assigned to benevolent or charitable activities. If they are part of the normal capital of the unions they will not be exempt from the terms of the new tax, any more than they are exempt from Income Tax at the standard rate at present. There is no more democratic property-owning body perhaps than a trade union, and once we begin on these exceptions there are other cases which may have an equally strong claim. In defining exemption we have to choose those things which are so clearly distinguishable in their purpose from other activities that we can justify on social and other grounds that they should be left out of the tax.
I am a genuine seeker after truth in this matter. We on this side of the Committee have come into the debate with open minds and I am bound to say that so far I have not been convinced by the arguments I have heard. I always get up with great trepidation to speak on an Amendment which has been moved by the hon. Member for Portsmouth, Langstone (Mr. Stevens), because I always think that he has been put up to something and that it has been drafted for him and has been tied up nicely with the Treasury. [Interruption.] I hope that the debate is quite open—

Mr. Stevens: On a point of order. Is it in order for an hon. Member to call another hon. Member a "stooge"? A "stooge" by any other name may smell as sweet or as dirty.

The Chairman: I did not hear the word "stooge".

Mr. Houghton: I would not mind being put up to move any number of Amendments if I had any hope of having them accepted. I envy the hon. Member for Langstone. I do not despise his activities in the least. I wish that I were in the same position. I am sorry, but we on this side of the Committee are not favourably disposed to the Amendment.

The Financial Secretary to the Treasury (Sir Edward Boyle): We are now discussing two Amendments to Clause 14 and one Amendment to Clause 25. I think that I am right in saying that in the speeches made so far none of my hon. Friends has actually dealt with the third Amendment and, therefore, I hope that it will not seem discourteous to the Committee if I confine my argument in the main to the first two.
It is easy for there to grow up in the course of debates an impression of what appears to be an alliance between the two Front Benches against the rest of the Committee. Nothing is easier—and I hope that I do not include in it too much—than to express agreement between the two Front Benches in this way, but I think that the hon. Member for Sowerby (Mr. Houghton) has made an extremely careful speech to which I


hope the Committee will pay attention. I find myself in agreement with a good deal of what he said.
Clause 14 provides for certain exemptions from the Case VII charge. Broadly speaking, the bodies which will benefit from the Clause as drafted are those which already enjoy a wide measure of exemption from Income Tax. For example, subsection (1) exempts charities, and charities enjoy virtually general exemption from tax. Subsection (2) exempts superannuation funds approved by the Commissioners of Inland Revenue under Section 379 of the Income Tax, 1952.
The first Amendment, moved by my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens), proposes to extend Clause 14 in an important way by proposing that there should be exempted from the new charge the short-term gains of any investment trust if its shares are publicly quoted on a recognised stock exchange in the United Kingdom, it is not under the control of five or fewer persons, and its articles of association provide that any surplus arising from the realisation of investments shall not be available for the payment of dividends. I fully recognise that my hon. Friend has drawn this Amendment with care and that several conditions have to be fulfilled. Nevertheless, for reasons I shall explain, I cannot advise the Committee that we should make this very big addition to the number of exemptions envisaged in Clause 14.
Up to date, any gain from the realisation of investments has not been subject to tax unless the person making the gain was engaged in a trade of investment dealing. It is for this reason that institutions such as investment trusts and unit trusts have not had to pay tax on surpluses on the realisation of investments. But, of course, it was precisely to enable tax to be charged on certain profits from investments which have hitherto been tax-free, namely, profits realised in a relatively short time, that the present legislation was brought forward.
This Amendment, which, in the case of certain investment trust companies, would let out just the sort of gains which

it is desired to Charge, would, in my night hon. and learned Friend's view, definitely be something of a wrecking Amendment from the point of view of the whole scheme of his new Case VII. I think that to make a special exception for the gains of investment trust companies while maintaining the charge on the gains of other taxpayers would not tally with that sense of fair treatment between one taxpayer and another which has always marked our tax system and which, indeed, was one of my right hon. and learned Friend's main purposes in bringing forward this new Case VII tax.
My hon. Friend the Member for Langstone made the point that investment trusts may find themselves in a difficult position. Normally, they would not want to do a good deal of short-term changing in share acquisition, but, nevertheless, there might be special factors Which caused them to make certain short-term changes in order, perhaps, to protect the income yield, or when they applied for a new issue and obtained too small an allocation to be worth retention. I quite understand that these cases could arise.
I have not an interest to declare this afternoon, but I should have had an interest to declare in this matter some years ago because, before I became a member of the Government, I was myself a director of what was, in effect, a small investment trust company.
The fact that, for investment trusts, short-term gains may be the exception rather than the rule is not really a satisfactory reason for exempting from tax those gains which they do make any more than it would be a reason for treating in that way the short-term gains which a particular individual makes only rarely. Individual investors who do not normally speculate may, just as much as an investment trust, find special reasons why they have to make an occasional short-term change in an investment. This occurs to individuals whether or not they are connected with investment trust companies or have responsibility for managing investment trusts. There may be particular reasons why short-term changes have to be made.

Mr. Stevens: I entirely accept what my hon. Friend has said but, surely, in the case of the individual who is put in the position of making a short-term capital gain, the gain is available to him as spending money, as income, whereas, in the case of the investment trust corn-panics to which I have been referring, this is not so. How does my hon. Friend square what he has been saying with what my right hon. and learned Friend has said all the way through about this short-term capital gains tax, that what he is seeking to tax is spending money, income? What we have been discussing on these Amendments is exactly the opposite. It is saving.

Sir E. Boyle: I was just coming to that point. The answer to my hon. Friend is that the tax which my right hon. and learned Friend is introducing is not, in fact, a tax on realised gains. The whole basis of the Case VII tax is that the appropriate test for distinguishing between short-term speculative gains, Case VII gains—call them what one likes—and long-term investment is a time test. Accordingly, periods have been fixed which are such that the reasonable inference can be drawn that, in general, transactions completed within those periods are of an income-seeking nature. My hon. Friend is going further and seeking to introduce by his Amendment a completely different kind of test, namely, that of what happens to the gains of a particular type of company. With respect to my hon. Friend, I do not think that it would be possible to accept the Amendment and stop there.
4.15 p.m.
I believe that the application of such a new test could not be confined to investment trusts and that the logical end of accepting my hon. Friend's Amendment would be to allow an exemption or, at least, a reduction in tax in respect of short-term transactions when the gains were reinvested. My right hon. and learned Friend's motive for introducing the tax was exactly as he has put it. Nevertheless, this is not a tax on realised gains and, as my right hon. and learned Friend has always made absolutely clear, he is not concerned in this context with the motive for the short-term gain. I put it to my

hon. Friend that the Amendment he has moved so very reasonably this afternoon would make a very big change in my right hon. and learned Friend's whole scheme, and it could not stop there.
I come now to the second Amendment, that spoken to by my hon. Friend the Member for Taunton (Mr. du Cann), namely, the Amendment which proposes that there should be a special exemption from Case VII tax for gains accruing to authorised investment trusts as defined by Section 69 of the Finance Act, 1960. My hon. Friend, whose work in this movement we all recognise and admire, suggested that there should be an exemption from the short-term gains tax for authorised unit trusts on the ground that these encourage savings, are not engaged in speculative activities, and, as he pointed out very clearly, encourage ordinary wage-earners to have a share in the wealth which is being produced.
Although I appreciate all that my hon. Friend the Member for Taunton has said, it seems to my right hon. and learned Friend the Chancellor that, if they derive gains within Case VII, there is no convincing reason to exempt them when other persons whose main activities are not speculative nevertheless have to pay tax on their short-term gains. Here again, there is no question of differentiating motives in my right hon. and learned Friend's mind.
There are one or two other points to be considered in this connection. In 1960, in deference to a request by the unit trust movement, the tax treatment of authorised unit trusts was brought into line with that of investment companies, with the result that unit trusts, like investment companies, became, perfectly properly, entitled to relief for their management expenses and, as a corollary, were brought into the Profits Tax charge. Investment companies will be subject to Case VII tax. Trusts in general will be subject to the new tax on short-term capital gains. In view of the way in which we have assimilated the treatment of unit trusts in the past to the treatment of other investment companies, I think that it would be difficult to make a special exemption in favour of authorised unit trusts.
The main point I make to my hon. Friend is this. I am as keen as he is on the success of the movement, and I


am delighted that there are now 160,000 people concerned with my hon. Friend's unit trust. This is a very important movement and, of course, we want to see people with lower incomes sharing in the productive wealth of the country by this means. Nevertheless, I do not think, with respect, that it follows from that that they ought to be given a differential advantage in the tax system. In a way, I think that I can almost turn my hon. Friend's arguments not against him, but the other way round, and say that, precisely as more and more people do become ordinary shareholders in the nation's wealth, we do not want to see them treated in a special category for tax purposes.
Just as we may well think that it is perfectly right, as we become richer as a community, that certain forms of universal social service should be discontinued—we have often discussed food subsidies, including the bread subsidy, and so forth—so, by the same token, I should myself say that it is right, as we become richer as a community, that those who are shareholders in the nation's wealth should be treated like everyone else, namely, that the rate of tax which they pay should depend upon their personal circumstances. Those who are not well off, those who do not pay tax at high rates, will not pay any great amount of extra tax as a result of the new Case VII which is being introduced.
May I repeat an argument which I have mentioned already but which bears repetition. Authorised unit trusts are treated for tax purposes generally in the same way as investment companies. Like investment companies, they do not rank for any special exemption and I believe it right that they should be subject to the Case VII tax. They receive money from individual savers and invest it to produce an income for the unit holders and, at the same time, provide them with a readily realisable investment in the form of their units.
This is a useful and very important activity, but it is difficult, I think, to say that it should qualify unit trusts for special exemption from Case VII tax It is always difficult, when bringing in a new scheme of taxation, to decide how wide the exemption should be. While considering things like charitable activities and superannuation funds, it is

fairest, in general, to base our tax system as far as we can on the principle which has prevailed up to now, namely, that throughout our direct tax system taxpayers should pay in accordance with their own particular circumstances.
Having listened carefully to what my hon. Friends have said, it is in accordance with that general principle that I cannot advise the Committee to accept the Amendment.

Mr. James Callaghan: I speak as one who believes that the growth of unit trusts is desirable and certainly should not be discouraged. The speeches of my hon. Friend the Member for Sowerby (Mr. Houghton) and the Financial Secretary were overwhelming, and I accept the philosophy put forward by the Financial Secretary.
However, I hope that the Financial Secretary will not endanger our future relations by speaking of the appearance even of an alliance between the Front Benches against the back benches. I think that that was a most incautious remark. In fact, the alliance is between the Opposition and the Government Front Bench against the Conservative back benches.
I know of no hon. Member on this side of the Committee who wants the Amendment to succeed. I am very glad that we have the Government with us on this matter. I always consider that the rôle of the Financial Secretary is that of a young woman who would like to do right, but is frequently tempted to do wrong. The temptation has come to him again this afternoon, and we are by his side assisting him to resist that temptation. He has stood up manfully—or should I say womanfully—against the temptation to do wrong. I agree with what he has said and hope that he will continue to resist the Amendment.

Mr. du Cann: Whoever is in alliance with whoever else, I should say two things. I know how much my colleagues, like myself, appreciate what my hon. Friend the Financial Secretary said about the work which the unit trust movement is doing. All that I wish is that a little more was done to help it along its way. However, we are not ungrateful for what has been done.
My first point arises directly out of something which the Financial Secretary said. He said that, as a result of a direct request by the unit trust management companies, unit trusts were assimilated with investment trusts for the purposes of taxation. He went on to argue by inference that the two, therefore, were virtually the same. That is not so, any more than a sheep is the same as an elephant because both have four legs and a tail. The reason why it was suggested that the two activities should be assimilated from the point of view of taxation was to remove the tax disability on unit trusts, and not to put them in a specially favoured position. I should like to make that very clear for the record.
Secondly, the Financial Secretary said that he thought that it would be quite wrong to put any savings movement in a class of special advantage. I do not disagree with that view. But the tragedy is that that is exactly the position in England today. We have the sacred cow of the National Savings movement, which is continuously given special advantages. We have life insurance premiums, which, to some extent, are tax free. There is tax exemption for the first £15 of interest on money deposited with the trustees savings banks and with the Post Office.
My argument has always been that it must be right to rationalise these advantages. It is absurd that a deposit with the Co-op bank does not contain a tax-free element, just as it is absurd that a regular savings scheme with a unit trust or building society, which is every bit as valuable to the economy as the payment of a life insurance premium, should not have an advantage similar to that which such premiums enjoy. That is my point.
I suggested in my speech that the effect of this speculative gains tax would be to put unit holders of a unit trust in a specially disadvantageous position. I suggested that tax would be payable by the trust fund in respect of dealings which everyone seems to agree must occur from time to time in the natural order of sound investment management. The tax will be payable by the fund, and the ordinary unit holder who subscribes to a savings scheme can be liable for a second amount of tax.
If my hon. Friend the Financial Secretary could comment on that matter, it would be valuable and helpful to the Committee.

Mr. Stevens: I always pay the greatest possible attention to the speeches of the hon. Member for Sowerby (Mr. Houghton), whether they are his own or speeches which he has been put up to make. It was clear this afternoon that he had no great sympathy with the two Amendments, nor any great hostility towards them.
Only one of the series of arguments deployed by my hon. Friend the Financial Secretary carries great weight with me. I should like to deal fairly thoroughly with some of his other arguments on another occasion. It is not easy to say that, if these Amendments were accepted, the principle of them could not be much more widely applied. I am not prepared to say that that could not be so this afternoon. I should like a little more time to do more research into that point. I confess that I am not wholly convinced, but, because I am not fully equipped at the moment to press it, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Question proposed, That the Clause stand part of the Bill.

Mr. Donald Wade: Since we are dealing with special cases, I hope that it is in order for me to raise a small but not unimportant point in connection with building societies. For taxation purposes, building societies fall into a special category and, therefore, I think that they form an exceptional case. It is not clear to me how they will be affected by this taxation of short-term gains.
I think that it would save time if I were to read an extract from a letter from the secretary of the Building Societies Association to the Chancellor of the Exchequer, dated 15th May this year. It reads as follows:
The Council of the Association has requested me to express its concern that as the provisions of the above-mentioned tax at present stand a building society will he liable within the limits prescribed, to tax on any surplus arising from the sale of investments. It appears to have been overlooked that paragraph 3 (d) of the Income Tax Arrangements made between the Inland Revenue and building


societies expressly excludes from a society's computation for Income Tax any surplus or loss arising from the realisation of investments. The provisions of the Finance Bill thus conflict with the treatment of this item under the existing statutory Arrangements, which was accepted by building societies in good faith, and the Council therefore requests that the Bill may be amended to preserve the present position.
The Council has noted that the special position of mutual life offices may lead to an amendment to the Bill. The Council has asked me to point out that building societies are similarly in a special position. The building society is by statute bound to invest only in trustee securities and must comply with the most stringent conditions as to short-term maturities in the case of gilt-edged stocks, and corporation loans in order to ensure a high degree of realisability to meet demands made upon it at any time, whether by way of withdrawals by its investors or advances to borrowers.
4.30 p.m.
On other occasions when we have discussed Finance Bills, I have raised the subject of building societies. I shall not enter at any length into the general subject or the problems concerning taxation. I simply make the point that in carrying out their proper duties it is necessary for building societies to change their investments from time to time. They do not make profits in the strict sense of the term and there are no equity shareholders to whom any such profits could be paid. It seems to me that they fall into a special category. It would be helpful to know how they would be affected and what is the answer to the letter sent by the Secretary of the Building Societies Association to the Chancellor.

Mr. William Clark: I regret that in the Clause my right hon. and learned Friend the Chancellor of the Exchequer has not thought fit to extend the exemptions to take cognisance of unit trusts and investment trusts. My hon. Friends the Members for Portsmouth, Langstone (Mr. Stevens) and for Taunton (Mr. du Cann) have clearly demonstrated that it must be a political decision whether we help small savers. I unashamedly say that we should take that political decision and help small savers up to the hilt.
In reply to the debate yesterday on an exemption limit for capital gains tax, my hon. Friend the Financial Secretary to the Treasury said—

Mr. Mitchison: On a point of order. Is not the hon. Member discussing the matter which has just been before the Committee and decided?

The Temporary Chairman (Sir Samuel Storey): The hon. Member is, I think, getting away from the Clause.

Mr. Clark: I am sorry if I have confused the Committee. I was trying to speak generally on exemptions and regretted that they were not wider than the Bill provides.
The very fact that yesterday, when the question of an exemption limit for capital gains was debated, my hon. Friend the Financial Secretary pointed out that all of us had it wrong concerning the £15 exemption for Post Office and trustee savings bank savers, obviously indicated that this exemption of the first £15 of interest is intended to attract people to lend money to the nation. That I accept.
Presumably, the reason why the exemptions in the Clause are not extended further is that the Government wish to continue this preference for investing with the State. The reason why they must give tax relief on the first £15 of interest is the attractive rates of interest given by other financial bodies, including unit trusts and investment trusts.

Mr. A. E. Hunter: Would not the hon. Member agree that the rate of interest on Post Office savings is very small—only 2½ per cent.?

Mr. Clark: I agree, but the rate is also very low in the case of many unit trusts. If it is necessary to give a fiscal incentive to Post Office and trustee savings bank savers because of the more attractive avenues for investors in other financial institutions, unit trusts and investment trusts are now being penalized—

Mr. Mitchison: On the same point of order, Sir Samuel. Surely, the hon. Member is coming back every time to a point which has already been disposed of by the Committee. All that is contained in the Clause is summarised in the note at the side:
Charities, superannuation funds, and other special cases.
The special cases are the United Kingdom Atomic Energy Authority and a point about bankruptcy.

The Temporary Chairman: I was about to call the hon. Member's attention to that when the hon. and learned Member for Kettering (Mr. Mitchison) rose.

Mr. Clark: Again, I am sorry for the confusion. Perhaps I may come to the question which I should like my hon. Friend the Financial Secretary to answer. As the differential with the Post Office and trustee savings banks has been narrowed because of the imposition of a capital gains tax on unit trusts and financial investment trusts, is it envisaged that the £15 exemption given to Post Office savings bank savers is to be reduced?

The Temporary Chairman: That does not arise on the Clause.

Sir E. Boyle: The hon. Member for Huddersfield, West (Mr. Wade) will have seen that there is no reference whatever in the Clause to building societies. I can, therefore, give an unambiguous reply to his question. If, in the course of disposing of their assets, building societies make gains within the time limit set under the proposals of my right hon. and learned Friend the Chancellor of the Exchequer, they will be liable under Case VII. I do not want there to be any misunderstanding about this. There was no specific Amendment on the subject, so it would not be proper for me to deploy the arguments at length. Building societies, however, are not included within the scope of the exemption in the Clause. Therefore, the position is perfectly clear.
In answer to my hon. Friend the Member for Nottingham, South (Mr. W. Clark) and my hon. Friend the Member for Taunton (Mr. du Cann), I should like to say this without, I hope, getting out of order. Whether it is in the Clause or not, my hon. Friend the Member for Nottingham, South must please not say that I have said anything to the Committee suggesting that it is better to lend to the State than to lend for the purposes of industry, because I have said no such thing. I was merely answering yesterday because I thought that the debate took a form which suggested that there was misunderstanding about the purposes of the concession in 1956.
The answer to my hon. Friend the Member for Taunton about specially favourable treatment for the National

Savings movement is that if he would look carefully at what I said in column 305 of HANSARD yesterday, it answers to some extent his point. I had better not enlarge upon anything I have said lest I, too, should get out of order.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 15.—(SUPPLEMENTARY.)

Mr. Frederick Mulley: I beg to move, in page 22, line 6, at the end, to insert:
(3) Where gains accruing to trustees of a settlement are assessed and charged on them under Case VII, the tax chargeable shall be treated by the trustees as a proper expense to he set against the capital of the trust estate notwithstanding any contrary direction in the instrument creating the trust.
This Amendment is in a sense consequential upon the decision to impose a short-terms gains tax and is not concerned with the merits of the tax. I desire to get clarification of the position of trustees under the new tax and, in particular. of trustees of the ordinary type of settlement which is usually to be found in family arrangements.
I do not suggest that there should be any exemption because money is put upon trust as distinct from all other categories. That point has been exhaustively discussed and, quite properly, it has been decided that it would be wrong to make an exemption for trusts of this character. Had such an exemption been made, it would be a fruitful loophole for evaders.
The point I wish to stress is the responsibility of the trustees and, in particular, whether the tax should be charged against the corpus or capital of the trust fund, or whether it should be borne by the life tenant out of income. The Bill makes it clear—it is set out concisely in the White Paper—that the tax will be due from the trustees and not from the beneficiaries of the trust. I assume from that, although doubt has been expressed in view of the Chief Secretary's remarks on Second Reading that the trustees would be personally liable, that the trustees are liable only in the sense that it is they who must pay the tax. Obviously, they must recoup themselves from the trust fund.
Since the tax arises as a result of short-term capital gains, it would be wholly wrong if it were set against the income of the fund. To give an example of the simplest kind of settlement of this kind, in which money is left to a widow for life and the remainder to children, it would obviously be wrong if the trustees engaged in substantial speculation and the widow's income was reduced to pay the tax, whereas, of course, the additional capital would accrue to the benefit of the remainder-men.
I am sure that, although this tax is so expressed to be an income tax, it would be wrong if the life tenant had to bear the burden of it. In some cases it could happen that the income for the year could be largely obliterated by the incidence of an exceptional tax of this kind. It might be said that trustees of this kind of settlement should not speculate, and I could not agree more. But, as has already been pointed out in the discussion of earlier Amendments, there will be cases where a disposal for the purposes of this tax is forced upon the trustees, possibly by the take-over of shares that have been recently acquired for cash, when there is no alternative but to have a technical disposal for purposes of this tax. There may well be cases where trustees who have no desire to speculate may find themselves technically subject to this tax.
I therefore suggest that unless this point is already taken care of, there should be provision, while we are dealing with the tax, to guide trustees as to whether or not this should be set against the income or the corpus of the trust fund. As I understand the position, unless there is specific provision in the instrument creating the trust, since this is an income tax—it is, after all, Case VII of Schedule D and comes under the Income Tax Acts—the trustees would have no alternative but to charge it against the income of the life tenant.
It could well be in future, when these instruments are drafted, that this point will be taken into consideration and there will be a special direction in trust deeds guiding the trustees on the possibility of this matter arising. Clearly, that cannot be expected to be

found in deeds which had been drafted when there was no tax of this kind. It may be that if I were to draft my Amendment today I would insert a date at the end of the words because I would not wish to fetter settlors or testators in the future.
It seems to me that we ought to get the position of trustees clear as to their responsibilities and powers as a result of this new class of tax which may from time to time concern their investments because, as the Committee knows, it is now not only a general conveyancing practice to give very wide powers of investment in trust deeds of this sort; in fact, in recent years there is provision in most cases for equity investment as a result of the Trustee Investment Act. This was not the case when the Trustee Act was passed, and I understand that before the war deeds giving trustees wide power of investment were rather exceptional. But today it is the practice, and I would think that we should not leave Case VII without giving this guidance to trustees.

Mr. Wade: I am glad the hon. Member for Sheffield, Park (Mr. Mulley) has moved this Amendment to give the Attorney-General an opportunity of clearing up the position. I think that there is some doubt in the minds of trustees—that is to say, those trustees who have read the Bill.
It seems to me that there are three questions which require an answer. First, are trustees personally liable? If they are, I presume they will be entitled to recoup themselves from the fund. Secondly, as this is a form of income tax, is it to be payable out of income or out of capital? That is a point which I believe the hon. Gentleman has already raised. Thirdly, if it is necessary to make some Amendment as is proposed, will the word "settlement" be adequate? Will "settlement" cover trusts created by a will—for example, the trust for sale with power to vary investments from time to time during the continuance of the trust for sale? If there is to be an Amendment, I hope that it will be wide enough to cover that point.

4.45 p.m.

Mr. Mulley: I would not want to anticipate the views of the Attorney-General, but if the hon. Member for Huddersfield, West (Mr. Wade) looks at


the Settled Land Act and the Trustee Act he will find that he need have no anxiety on the point.

Mr. Wade: I have no doubt that the Attorney-General is well informed on these matters. I think that the points which I have raised should be cleared up, and I look forward with interest to what he has to say.

Mr. Mitchison: I should like to add a word on the second question raised by the hon. Member for Huddersfield, West (Mr. Wade), which I regard as the primary and perhaps the only question raised by this Amendment.
I see the difficulty here. It may be said that this is income, that these are short-term gains and that they are being treated for taxation purposes as income. None the less, they come out of dealings with the capital, and I should have thought that it was right as between the life tenant and the remainderman that they should be charged to capital account. When considering that question we are not considering any more than the nature of the tax itself. We are not really considering the administrative machinery under which it is taxed. It seems to me, looking at the matter as fairly as one can, that it is therefore right that these gains should be charged to capital and that the life tenant should not be made to pay them.
I also agree with what my hon. Friend the Member for Sheffield, Park (Mr. Mulley) said at the end of his speech, that the Amendment as it stands is not quite satisfactory because one does not really wish to limit future settlements. What one wishes to do is to prevent provisions which were put in without contemplation of this rather exceptional tax being applied in a manner which might not and, indeed, cannot be in accordance with the settlor's intentions because it is extremely unlikely that he foresaw what the Goverment were going to do.
For those reasons, I think that this is the right thing to do as between the two interests in the settlement.

The Attorney-General (Sir Reginald Manningham-Buller): I am glad to be able to agree with the hon. Member for Sheffield, Park (Mr. Mulley) that the concluding words of the Amendment are

not really very happy because they would certainly fetter the discretion of those who create trusts in the future as to how provision should be made for this tax. I myself do not think there is the least doubt about the position of trustees in relation to this matter, or any reason for concern.
Under Clause 9 (3), the net amount on which tax is charged for a year of assessment is deemed for Income Tax purposes to be income of the persons chargeable, and in this case it would be the trustees. But this is, I repeat, for Income Tax purposes. It does not completely alter the character of the receipt. The capital gain will not become an income receipt which will go to the life tenant. The provisions of this Bill do not operate to affect that. So it is right to say that this provision does not operate to make the net gain income for any other purpose.
In the ordinary course it would seem that trustees would have to find the tax out of the capital of the trust, since the gain less tax would go to increase the capital. I think that there is no real doubt about that at all, and I would be reluctant to put into the Bill anything to fetter the discretion of trustees as to how provision is made in relation to payment of this tax. But, in view of the nature of the gain, being a capital gain for all other purposes except the purposes of tax liability, I would not think that there is any power, apart from the provisions of the trust deed, for them to make any deduction at all from the income to the life tenant.
I completely disagree with the statement which the hon. Member for Sheffield, Park made in moving his Amendment, saying that as the Clause now stands they would have no alternative but to charge the tax against the income of the beneficiaries. That is really not the case. I can understand how, on a first reading of the Bill, that impression might be gained, and I am grateful to the hon. Member for giving me the opportunity of making it as clear as I can that certainly the provisions of this part of the Bill do not operate to cast the duty on trustees of discharging this tax liability out of income payable to the beneficiaries.
In answer to the hon. Member for Huddersfield, West (Mr. Wade), trustees


are personally liable. I have dealt with the second question, and the third question does not, therefore, arise.

Mr. F. J. Bellenger: Some confusion does arise, although the Attorney-General has attempted to allay it by his dictum, because the tax is charged under Case VII of Income Tax. Yet the Attorney-General said that trustees, although personally liable, will have to pay that tax not out of the income derived from the trust, but out of capital. Of course, if that is the case, that ends the matter so far as the Amendment is concerned, I should have thought. Indeed, the Attorney-General has said so clearly, that this comes out of the capital of the trust.
I intervene only because I happen to be a trustee myself, a trustee of two trusts, one a trade union trust of which the trustees will probably—I hope so—find that this matter will arise, because it happens that we recently invested some of our funds in a unit trust. Obviously, the purpose of that is to make sure that our capital does not depreciate too far, so that the beneficiaries can enjoy, as they hope to enjoy, the full benefits of the trust as it was originally set up.
Of course it does sometimes occur that the courts take different views from those expressed in statements made in this Chamber, even by the learned Attorney-General. We must hope that the views which the Attorney-General has stated in dealing with my hon. Friend's Amendment will meet the point

Mr. Graham Page: I am sure that none of us would worry if my right hon. and learned Friend the Attorney-General were translated to another bench on this subject, or were even a Special Commissioner; we would rely on the proper interpretation of this Clause as he has interpreted it to us in the Committee.
But everyone does not read the reports of the debates of the Committee; the trustee who is in charge of a trust fund. when he makes a gain on a disposal of some of the trust fund, will read this Bill when it is a Statute, and the whole of these Clauses, from Clause 9 to Clause 15, deal with income and treat this gain entirely as charge-

able to Schedule D Income Tax. I am sure that there will be confusion in the minds of the public on this, and I am not sure that that confusion will not go into the legal profession and thence to the bench.
I really cannot see what harm would be done in making it clear beyond peradventure in the Measure itself that any tax on a gain of this sort comes out of the gain itself and is therefore chargeable to capital. I would ask my right hon. and learned Friend to see whether he can provide a form of words which will in no way detract from anything else in the Clause but which will make it quite certain from what source this tax is to be paid.

Mr. Mulley: I am sure none of us wants to venture to disagree with the legal views of the Attorney-General, but there is, I would suggest, a great deal of force behind the cogent argument of his hon. Friend the Member for Crosby (Mr. Graham Page). It is the argument which induced me originally to put down the Amendment. It seems to me that in a complicated matter of this sort the trustees, who, after all, for the most part, are taking on an onerous duty quite voluntarily, should be given clarity when it is possible, instead of obscurity.
Like the hon. Member, I would certainly hesitate to suggest the view which a High Court judge might express if this came before him, but I can certainly think of many points which, as counsel, one might put in submissions on a matter of this sort, and it is certainly the case, as many hon. Members of the Committee have already said, that, in presenting this tax to the Committee and, indeed, to the country, the Chancellor of the Exchequer and other Government spokesmen have always said it was to be a tax on income, or short-term speculative profits by way of income. This tax was designed to start from that, it has been said, and that this view would be before the judge.
As the Attorney-General well knows, and it is to a large extent the point of the Amendment, it is not a question of just the general law: it is a question of a wide variety of clauses in a large number of different settlements and instruments. I have not brought precedents from the books with me, but I can


think of several forms containing some such words as, "All tax arising from the investment of the fund shall be borne by the income of the fund"—words of that sort.
I would think that he would be an extremely bold man who would say that if the construction of such a provision in a trust instrument came before the court looking at Clause 9 (3, c) of the Bill it would find beyond any doubt at all that the trustees were entitled to, or were not guilty of a breach of duty if they did not, charge it against capital instead of against income. I think that it may well happen, if we were not clear in this matter, that there will be endless litigation, which will involve expense to trust funds, and I suggest that we should not put this burden on people if a simple Amendment to this Bill could remove the doubt.
I would not be so immodest as to suggest that the form of words I have put forward would be the best way of meeting the point, but if the Attorney-General would concede that there is some need for amplification, and would give an undertaking that on Report he will include words for this purpose, I would not, of course, press my own form of words.

The Attorney-General: I have listened to all that has been said. I am sorry I cannot agree with the hon. Member that a competent solicitor studying this Bill would think it completely converted what is a capital receipt in the ordinary sense into an income receipt qua a trust fund. He has only to look at the Bill to see that what it does is to treat a capital receipt as income for Income Tax purposes and Income Tax purposes only. Therefore, while I have listened with the greatest possible attention, I really do not think there is any need for any legislation to remove an alleged doubt which any competent solicitor ought to be able to dispel.

Mr. Mitchison: With great respect to the Attorney-General, this is being obstinate to little purpose. Here are one, two, three people, and all have a little experience in these matters. None of us would wish to set ourselves up against him even on what is rather a Chancery matter. We all agree with him to start with on what the Clause means. I said the same thing. But we

all feel some doubt about what may happen. All we are asking him to do is to put his own opinion and our opinion into the Bill, instead of uttering it in this Committee and hoping that everybody will read it. There is no need for me to tell him that what he says here is not available in the court dealing with it. Of course it is not
5.0 p.m.
Though the Treaty of Rome may enable us to search into Parliamentary debates to discover the motives which induced the legislature to put this or that into a Bill, at present we cannot do it, and so long as we cannot do it, surely the only sensible thing to do is to accept that—I do not want to rate us too high—three fairly sensible hon. Members have doubt about what people may think and put something into the Bill to meet it.
If the Attorney-General will not do that, I am sorry to say that we shall have to divide the Committee. We know that the Amendment is inadequate at the end. We all agree with the Attorney-General about what the actual state of affairs is. What we should divide on would be his obstinate refusal to do a very small and sensible thing.

The Attorney-General: It really is not that. I will try to make the point as clear as I can. The Amendment, as has been admitted, is one which completely fetters the discretion of the creator of the trust.

Mr. Mitchison: We could alter that on Report.

The Attorney-General: While it is perfectly easy to express the view that these payments should and would come out of capital—I do not think there is any doubt about that—I am very reluctant to agree to put any statutory provision into the Bill which would prevent trustees and beneficiaries making such arrangements as they wished to do in relation to a trust.
It is not all that easy simply to take the declaratory provision which the hon. Members opposite is seeking to do without at the same time fettering the rights of beneficiaries and trusts to make such arrangements as they wish Personally, I do not share the view expressed that there is any real doubt about what the


position would be in the absence of any special agreement. I am certainly reluctant to put anything into a Statute which would interfere with the power of the trustees and beneficiaries to make any such special arrangements as might be suitable.

Mr. Bellenger: Would the Attorney-General explain the remark that he has just made about fettering the rights of trustees and beneficiaries to treat the charge as a charge against capital or income? Surely that depends on how the trust deed is drawn? If the charge, as it is at the present moment, is an Income Tax charge, the assumption would be, I should have thought, that without any contrary provision in the trust deed it would come out of income.
But if the Attorney-General is right in saying that it is mandatory on the trustees to make this a charge against capital, it seems to me to be almost a non sequitur for the right hon. and learned Gentleman to say that the trustees have some margin to decide whether it should go as a charge against capital or income. After all, the trustees are subject to fairly rigid laws.
1 agree with my hon. and learned Friend the Member for Kettering (Mr. Mitchison). If it is only a question of making this point clear—it is not a question of great substance to the Government—what harm would it do if the right hon. and learned Gentleman made the point as clear in the Act of Parliament as in the words which he has expressed to the Committee?

The Attorney-General: I should like to get this point home to the right hon. Member for Bassetlaw (Mr. Bellenger).

The Bill does not say that a capital gain will in future, if it falls within Case VII, be income. All it says is that a capital gain is to be treated as income for Income Tax purposes alone. So it does not start by being an income receipt. It starts as a capital receipt, and it is because it is to be treated as a capital receipt that we are making this specific change in this narrow field. This being so, the fact that it is a capital receipt remains unaltered by the Bill.

I am always willing to seek to make the Statutes as clear as I can, but there may be cases where there are a few beneficiaries and they are all of age, and then, personally, I do not think it would be desirable to put any Amendment into the Statute which would fetter their discretion as to how they should discharge this tax liability. It is a personal liability on the part of the trustee. As I said initially, it being a liability to pay tax on what remains in all other respects a capital gain, that tax one would expect to come, and it would have to come in the absence of a special arrangement, out of the capital fund. It might suit some trustees if the liability to tax which rests on the trustee were at one time discharged out of income. If the beneficiaries were all of age, they might be able to agree to that course being taken.

I am a little reluctant to accede to the request of the hon. Gentleman to put into a Statute something which, although declaratory in one sense, might also be mandatory in another.

Question put, That those words be there inserted:—

The Committee divided: Ayes 175, Noes 235.

Division No 198.]
AYES
[5.6 p.m.


Ainsley, William
Brown, Rt. Hon. George (Belper)
Edwards, Rt. Hon. Ness (Caerphilly)


Allaun, Frank (Salford, E.)
Butler, Herbert (Hackney, C.)
Edwards, Robert (Bilston)


Allen, Scholefield (Crewe)
Butler, Mrs. Joyce (Wood Green)
Edwards, Walter (Stepney)


Bacon, Miss Alice
Callagnan, James
Evans, Albert


Baxter, William (Stirlingshire, W.)
Castle, Mrs. Barbara
Finch, Harold


Beaney, Alan
Chapman, Donald
Foot, Michael (Ebbw Vale)


Bellenger, Rt. Hon. F. J.
Cliffe, Michael
Forman, J. C.


Bence, Cyril
Collick, Percy
Fraser, Thomas (Hamilton)


Bennett, J. (Glasgow, Bridgeton)
Corbet, Mrs. Freda
Gaitskell, Rt. Hon. Hugh


Benson, Sir George
Craddock, George (Bradford, S.)
Galpern, Sir Myer


Blyton, William
Cullen, Mrs. Alice
George, LadyMeganLloyd (Crmrthn)


Boardman, H.
Darling, George
Ginsburg, David


Bottomley, Rt. Hon. A. G.
Davies, Harold (Leek)
Gourlay, Harry


Bowden, Rt. Hn. H. W. (Leics. S.W.)
Davies, Ifor (Gower)
Greenwood, Anthony


Boyden, James
Delargy, Hugh
Grey, Charles


Braddock, Mrs. E. M.
Diamond, John
Grimond, Rt. Hon. J.


Brockway, A. Fenner
Dodds, Norman
Hale, Leslie (Oldham, w.)


Broughton, Dr. A. D. D.
Donnelly, Desmond
Hall, Rt. Hn. Glenvil (Colne Valley)




Hamilton, William (West Fife)
Mapp, Charles
Silverman, Sydney (Nelson)


Hart, Mrs. Judith
Mason, Roy
Skeffington, Arthur


Hayman, F. H.
Mayhew, Christopher
Slater, Joseph (Sedgefield)


Healey, Denis
Mellish, R. J.
Smith, Ellis (Stoke, S.)


Henderson, Rt. Hn. Arthur (RwlyRegis)
Mendelson, J. J.
Snow, Julian


Herbison, Miss Margaret
Millan, Bruce
Soskice, Rt. Hon. Sir Frank


Holman, Percy
Milne, Edward
Spriggs, Leslie


Hooson, H. E.
Mitchison, G. R.
Steele, Thomas


Houghton, Douglas
Monslow, Walter
Stewart, Michael (Fulham)


Howell, Denis (Small Heath)
Morris, John
Stones, William


Hughes, Cledwyn (Anglesey)
Moyle, Arthur
Strachey, Rt. Hon. John


Hughes, Emrys (S. Ayrshire)
Mulley, Frederick
Strauss, Rt. Hn. G. R. (Vauxhall)


Hughes, Hector (Aberdeen, N.)
Neal, Harold
Stross, Dr. Barnett (Stoke-on-Trent, C.)


Hunter, A. E.
Oliver, G. H.
Swingler, Stephen


Hynd, H. (Accrington)
Oram, A. E.
Taverne, D.


Hynd, John (Atterclifle)
Oswald, Thomas
Thomas, George (Cardiff, W.)


Irving, Sydney (Dartford)
Owen, Will
Thompson, Dr. Alan (Dunfermline)


Jay, Rt. Hon. Douglas
Padley, W. E.
Thomson, G. M. (Dundee, E.)


Jenkins, Roy (Stechford)
Paget, R. T.
Thornton, Ernest


Johnson, Carol (Lewisham, S.)
Pannell, Charles (Leeds, W.)
Thorpe, Jeremy


Jones, Elwyn (West Ham, S.)
Parkin, B. T.
Tomney, Frank


Jones, Jack (Rotherham)
Paton, John
Wade, Donald


Jones, J. Idwal (Wrexham)
Pavitt, Laurence
Wainwright, Edwin


Jones, T. W. (Merioneth)
Pearson, Arthur (Pontypridd)
Warbey, William


Kelley, Richard
Plummer, Sir Leslie
Watkins, Tudor


Kenyon, Clifford
Popplewell, Ernest
Weitzman, David


Key, Rt. Hon. C. W.
Probert, Arthur
Wells, Percy (Faversham)


King, Dr. Horace
Pursey, Cmdr. Harry
White, Mrs. Eirene


Lee, Frederick (Newton)
Randall, Harry
Whitlock, William


Lewis, Arthur (West Ham, N.)
Rankin, John
Wilkins, W. A.


Lipton, Marcus
Redhead, E. C.
Willey, Frederick


Loughlin, Charles
Reynolds, G. W.
Williams, Ll. (Abertillery)


Mabon, Dr. J. Dickson
Rhodes, H.
Williams, W. R. (Openshaw)


MacColl, James
Roberts, Goronwy (Caernarvon)
Willis, E. G. (Edinburgh, E.)


MacDermot, Niall
Robertson, John (Paisley)
Wilson, Rt. Hon. Harold (Huyton)


Mclnnes, James
Robinson, Kenneth (St. Pancras, N.)
Winterbottom, R. E.


McKay, John (Wallsend)
Rodgers, W. T. (Stockton)
Woodburn, Rt. Hon. A.


Mackie, John (Enfield, East)
Ross, William
Woof, Robert


McLeavy, Frank
Royle, Charles (Salford, West)
Yates, Victor (Ladywood)


Mallalieu, E. L. (Brigg)
Shinwell, Rt. Hon. E.



Mallalleu, J. P. W. (Huddersfield, E.)
Silverman, Julius (Aston)
TELLERS FOR THE AYES:




Mr. Rogers and Mr. Lawson.




NOES


Agnew, Sir Peter
Chataway, Christopher
Glyn, Sir Richard (Dorset, N.)


Aitken, W. T.
Chichester-Clark, R.
Goodhart, Philip


Allan, Robert (Paddington, S.)
Clark, Henry (Antrim, N.)
Goodhew, Victor


Ashton, Sir Hubert
Clark, William (Nottingham, S.)
Gower, Raymond


Atkins, Humphrey
Clarke, Brig Terence (Portsmth, W.)
Grant, Rt. Hon. William


Balniel, Lord
Cleaver, Leonard
Grant-Ferris, Wg. Cdr. R.


Barber, Anthony
Collard, Richard
Green, Alan


Barlow, Sir John
Cooper, A. E.
Grosvenor, Lt.-Col. R. G.


Barter, John
Cooper-Key, Sir Neill
Gurden, Harold


Beamish, Col. Sir Tufton
Cordeaux, Lt.-Col. J. K.
Hamilton, Michael (Wellingborough)


Bell, Ronald
Corfield, F. V.
Harris, Frederic (Croydon, N.W.)


Bennett, F. M. (Torquay)
Costain, A. P.
Harris, Reader (Heston)


Bennett, Dr. Reginald (Gos &amp; Fhm)
Coulson, Michael
Harrison, Brian (Maldon)


Berkeley, Humphry
Courtney, Cdr. Anthony
Harvey, Sir Arthur Vere (Macclesf'&lt;ob/&gt;)


Bidgood, John C.
Craddock, Sir Beresford
Harvie Anderson, Miss


Biffen, John
Crowder, F. P.
Hastings, Stephen


Biggs-Davison, John
Cunningham, Knox
Heald, Rt. Hon. Sir Lionel


Bingham, R. M.
Dalkeith, Earl of
Hiley, Joseph


Birch, Rt. Hon. Nigel
Dance, James
Hill, J. E. B. (S. Norfolk)


Bishop, F. P.
d'Avigdor-Goldsmid, Sir Henry
Hinchingbrooke, Viscount


Black, Sir Cyril
de Ferranti, Basil
Hirst, Geoffrey


Bossom, Clive
Donaldson, Cmdr. C. E. M.
Hobson, Sir John


Bourne-Arton, A.
du Cann, Edward
Hocking, Philip N.


Box, Donald
Duncan, Sir James
Holland, Philip


Boyle, Sir Edward
Eden, John
Hollingworth, John


Bromley-Davenport, Lt. -Col. Sir Walter
Elliot, Capt. Walter (Carshalton)
Howard, John (Southampton, Test)


Brooke, Rt. Hon. Henry
Elliott, R. W. (Nwcastle-upon-Tyne, N.)
Hughes Hallett, Vice-Admiral John


Brooman-White, R.
Emmet, Hon. Mrs. Evelyn
Hughes-Young, Michael


Brown, Alan (Tottenham)
Errington, Sir Eric
Hutchison, Michael Clark


Browne. Percy (Torrington)
Erroll, Rt. Hon. F. J.
Iremonger, T. L.


Buck, Antony
Farey-Jones, F. W.
Irvine, Bryant Godman (Rye)


Bullard, Denya
Farr, John
James, David


Bullus, Wing Commander Eric
Finlay, Graeme
Jenkins, Robert (Dulwich)


Burden, F. A.
Fletcher-Cooke, Charles
Jennings, J. C.


Butcher, Sir Herbert
Fraser, Ian (Plymouth, Sutton)
Johnson, Dr. Donald (Carlisle)


Campbell, Sir David (Belfast, S.)
Freeth, Denzil
Johnson, Eric (Blackley)


Carr, Compton (Barons Court)
Galbraith, Hon. T. G. D.
Jones, Rt. Hn. Aubrey (Hall Green)


Carr, Robert (Mitcham)
Gammans, Lady
Kaberry, Sir Donald


Cary, Sir Robert
Gilmour, Sir John
Kershaw, Anthony


Channon, H. P. G.
Glyn, Dr. Alan (Clapham)
Kimball, Marcus




Kirk, Peter
Page, John (Harrow, West)
Stoddart-Scott, Col. Sir Malcolm


Leather, E. H. C.
Pannell, Norman (Kirkdale)
Studholme, Sir Henry


Leburn, Gilmour
Partridge, E.
Talbot, John E.


Legge-Bourke, Sir Harry
Pearson, Frank (Clitheroe)
Tapsell, Peter


Litchfield, Capt. John
Peel, John
Taylor, Frank (M'ch'st'r, Moss Side)


Lloyd, Rt. Hon. Selwyn (Wirral)
Percival, Ian
Taylor, W. J. (Bradford, N.)


Loveys, Walter H.
Peyton, John
Teeling, Sir William


Lucas, Sir Jocelyn
Pickthorn, Sir Kenneth
Temple, John M.


Lucas-Tooth, Sir Hugh
Pilkington, Sir Richard
Thatcher, Mrs. Margaret


MacArthur, Ian
Pitt, Miss Edith
Thomas, Leslie (Canterbury)


McLaren, Martin
Prior-Palmer, Brig. Sir Otho
Thomas, Peter (Conway)


Maclay, Rt. Hon. John
Profumo, Rt. Hon. John
Thompson, Richard (Croydon, S.)


Maclean, SirFitzroy (Bute&amp;N.Ayrs.)
Proudfoot, Wilfred
Thornton-Kemsley, Sir Colin


McLean, Neil (Inverness)
Pym, Francis
Tiley, Arthur (Bradford, W.)


Macleod, Rt. Hn. Iain (Enfield, W.)
Quennell, Miss J. M.
Tilney, John (Wavertree)


Maddan, Martin
Redmayne, Rt. Hon. Martin
Touche, Rt. Hon. Sir Gordon


Maginnis, John E.
Rees, Hugh
Turner, Colin


Maitland, Sir John
Rees-Davies, W. R.
van Straubenzee, W. R.


Manningham-Buller, Rt. Hn. Sir R.
Renton, David
Vaughan-Morgan, Rt. Hon. Sir John


Markham, Major Sir Frank
Ridley, Hon. Nicholas
Vickera, Miss Joan


Marlowe, Anthony
Ridsdale, Julian
Vosper, Rt. Hon. Dennis


Marshall, Douglas
Robertson, Sir D. (C'thn's &amp; S'th'ld)
Wakefield, Sir Wavell


Matthews, Gordon (Meriden)
Robinson, Rt. Hn. Sir R. (B'pool, S.)
Walker, Peter


Mawby, Ray
Robson Brown, Sir William
Walker-Smith, Rt. Hon. Sir Derek


Maxwell-Hyslop, R. J.
Rodgers, John (Sevenoaks)
Ward, Dame Irene


Maydon, Lt.-Cmdr. S. L. C.
Roots, William
Watkinson, Rt. Hon. Harold


Miscampbeil, Norman
Ropner, Col. Sir Leonard
Wells, John (Maidstone)


Montgomery, Fergus
Russell, Ronald
Williams, Dudley (Exeter)


More, Jasper (Ludlow)
Scott-Hopkins, James
Williams, Paul (Sunderland, S.)


Morgan, William
Sharples, Richard
Wills, Sir Gerald (Bridgwater)


Morrison, John
Shepherd, William
Wilson, Geoffrey (Truro)


Mott-Radclyffe, Sir Charles
Skeet, T. H. H.
Wise, A. R.


Nabarro, Gerald
Smith, Dudley (Br'ntf'd &amp; Chiswick)
Wolrige-Cordon, Patrick


Neave, Airey
Smithers, Peter
Wood, Rt. Hon. Richard


Nicholson, Sir Godfrey
Spearman, Sir Alexander
Woodhouse, C. M.


Nugent, Rt. Hon. Sir Richard
Speir, Rupert
Worsley, Marcus


Oakshott, Sir Hendrie
Stevens, Geoffrey
Yates, William (The Wrektn)


Orr, Capt. L. P. S.
Steward, Harold (Stockport, S.)



Osborne, Sir Cyril (Louth)
Stodart, J. A.
TELLERS FOR THE NOES:




Mr. Noble and Mr. Batsford.

5.15 p.m.

The Attorney-General: I beg to move, in page 22, line 19, to leave out "twenty-eight" and to insert "twenty-six".
This is a drafting Amendment. Clause 15 (4) refers to a unit trust scheme
… as defined in subsection (1) of section twenty-eight of the Prevention of Fraud (Investments) Act, 1958…
The definition in fact appears in subsection (1) of Section 26 of that Act, and this Amendment puts the matter right.

Amendment agreed to.

Mr. Wade: I beg to move, in page 22, line 36, to leave out "on behalf of" and to insert:
as agent and nominee for".
It might be helpful if I first of all referred the Committee to the concluding paragraph, headed "Information", of the White Paper on the Taxation of Short-term Gains, which reads as follows:
Provisions are included to enable the Revenue to obtain information from agents, etc., about transactions entered into by them on behalf of named persons. Persons who act on behalf of others (such as banks, estate

agents, solicitors and stockbrokers) will be under an obligation to state, in reply to Revenue enquiries, whether they have acted on behalf of a named person in acquiring or disposing of a chargeable asset or assets, and to give details, including dates of transactions and prices.
The wording of the Clause differs somewhat from the wording in the White Paper. Subsection (5) states:
Where it appears to the Commissioners of Inland Revenue that a person is or may be chargeable to tax under Case VII in respect of his acquisition and disposal of assets, they may by notice in writing served on any person require him …
Then the subsection deals with the period allowed and goes on:
… to furnish information in his possession with respect to the acquisition or disposal, being information as to matters specified in the notice …
That seems to me to give very wide powers. It is in the nature of a general inquiry. I do not wish to help those who intend to evade their duty to pay tax as laid down by this Bill or any other legislation, but a principle is involved. We must ask ourselves to what extent we should go in interfering with the confidential relationship between bankers, solicitors, accountants and their clients. We should look with


some care at any legislation which will destroy that confidential relationship, because in the end it will ultimately not be to the benefit of the Inland Revenue itself.

The Attorney-General: On a point of order. This is a very narrow Amendment, seeking that the words "on behalf of" in line 36 should be taken out of the Bill and the words "as agent and nominee for" inserted. There is nothing in relation to that Amendment dealing with paragraph (b), to which the hon. Gentleman has referred. I thought the whole question of the scope of the powers taken by the Revenue to secure information arose on a later Amendment. It would be much more convenient to discuss the extent of those powers then and keep this discussion to the very narrow point raised by the Amendment. namely, the changing of these words.

The Temporary Chairman: I think the hon. Gentleman should confine himself to this Amendment. He can seek to raise this point on the next Amendment.

Mr. Wade: I am aware of the next Amendment, Sir Samuel, and it has my general approval, but the object of the Amendment which I am moving is, first, to draw attention to the wording, and, secondly, to try and bring the wording of this Bill more into line with the wording of the White Paper, from which I have quoted. I think my reference to paragraph (b) was only incidental to the extent to which the Commissioners of Inland Revenue should inquire. I quite agree that this Amendment affects the earlier words, and if it is your wish that some of the wider aspects which arise from my Amendment should be discussed on the later Amendment, I am quite willing to abide by your Ruling.

The Temporary Chairman: I think it would be more convenient if we did that.

Mr. Wade: I will reserve presenting some of my views on the matter to the discussion of the later Amendment, which I feel sure will be called and on which there will be an opportunity for me to do so.
I hope I am in order, Sir Samuel, in pointing out that the wording in the White Paper is narrower than the word-

ing which appears in the Bill. It is my contention that the Bill goes considerably further. I would not entirely agree with the article with appeared in the Economist of 28th April on this point. I hope I shall be in order and be allowed to quote from that article on the point of the comparison between the wording in the White Paper and the wording in the Bill, to which my Amendment draws attention. The paragraph I wish to quote is as follows:
This will be the costliest exercise to collect an exiguous revenue in the history of our tax administration. It is an effort that ought to have been put to better purpose, and Mr. Lloyd is wholly to blame for burdening Somerset House with it. His successors, we can be sure, will build on his bad foundation a bad capital gains tax.

Mr. Nigel Birch: On a point of order. What 'has this to do with the Amendment?

The Temporary Chairman: I am waiting to hear how the hon. Gentleman will connect it with the Amendment.

Mr. Wade: I do not want to duplicate the debate, because I think I may have an opportunity on a later Amendment. I do not want to go too wide, but if I may I should like to be allowed to complete this quotation, which refers to this particular point. It continues:
His successors, we can be sure, will build on his had foundation a bad capital gains tax.
He is also to blame for allowing the Inland Revenue to attempt another dangerous (and tendentiously presented) foray into the remaining preserves of personal liberty.
I recognise that, in using the words "agent or nominee", we may still give fairly wide powers to the Inland Revenue, but what I wish to know is why the wording which is contained in the White Paper—and even that may raise some rather dangerous problems—has been altered to this considerably wider wording now found in the Bill. Perhaps if I leave it at that, and give an opportunity for the learned Attorney-General to reply, I may reserve my general observations for the discussion on the later Amendment.

The Attorney-General: This is a very narrow Amendment. The wording of the Bill in paragraph (a) is—
to state whether he has acted on behalf of the first-mentioned person in connection with any acquisition or disposal of assets by that person;


and the Amendment seeks to leave out the words "on behalf of" and to insert the words "as agent and nominee for." The hon. Gentleman, in referring to his own Amendment, by error said that the words were "agent or nominee", which, of course, alters the sense entirely.
The hon. Gentleman has said that there was a difference between the White Paper and what is in the Bill, and, of course, at the moment we are only considering the difference between the White Paper and this particular language in the Bill, because that is all that is raised by the Amendment. The passage which the hon. Gentleman read out from the White Paper made it quite clear that the White Paper was saying that the Revenue would be able to ask whether they had acted on behalf of a named person, and that we find the actual words "on behalf of" in the White Paper as they now are in the Bill.
The substance of the matter is that if the Clause is amended as the hon. Gentleman seeks to have it amended, the Revenue could only ask the person if he had acted as agent and nominee in connection with the acquisition or disposal of assets, and so the Revenue would be restricted to finding out whether someone had acted as nominee. That would severely limit the field of inquiry, because a stockbroker who merely acts in buying or selling shares for a client does not act as nominee, and, indeed, in the great majority of cases persons who act on behalf of others in regard to the acquisition or disposal of assets do not do so as nominees.
The later Amendment, to which the hon. Gentleman referred, makes reference to the powers of the Revenue, and I do not think that I ought to say anything about it on this Amendment. If this Amendment were accepted, the power of the Revenue to obtain information would be so restricted as to be practically useless, and whatever may be the argument which we may have later as to the extent of the powers, if the Revenue is to have any powers, I suggest that these powers must extend, if evasion of liability under Case VII is to be prevented, to being able to ask persons whether they acted on behalf of a named taxpayer and not be confined only to asking persons whether they acted as nominees on behalf of a named taxpayer.
For these reasons, I hope the Committee will agree to reject the Amendment, if the hon. Gentleman indeed presses it, but I think that perhaps from what he said in moving it he was under some misapprehension as to the scope of the Amendment he was moving.

Mr. Wade: I was not under any misapprehension. I wished to draw attention to the matter, and I am still of opinion that the words suggested in the Amendment are preferable to those in the Bill.

Mr. Ellis Smith: The hon. Gentleman wants a Division?

Mr. Wade: In view of your Ruling, Sir Samuel, I think we might still have an interesting discussion on the later Amendment, and solely in order that that may take place and in the hope that I shall catch your eye, I beg to ask leave to withdraw this Amendment.

Amendment, by leave, withdrawn.

Mr. Birch: I beg to move, in page 22, line 40, to leave out from "disposal" to the end of line 46.

The Temporary Chairman: I think it will be for the convenience of the Committee if we discuss with this Amendment (No. 66) Amendments No. 86, in page 22, line 30, to leave out from beginning to end of line 46 and insert—
(5) Where it appears to the Commissioners of Inland Revenue that a person is or may be chargeable to tax under Case VII in respect of his acquisition and disposal of assets, the High Court may on the application of the Commissioners of Inland Revenue order any person within such time, being not less than twenty-eight days as may be specified in the order,

(a) to state whether he has acted on the behalf of the first mentioned person in connection with any acquisition or disposal of assets by that person;
(b) if so, to furnish information in his possession with respect to the acquisition or disposal being information as to matters specified in the order which are relevant to the question whether the first mentioned person is chargeable as aforesaid by reference to the acquisition or disposal, or are relevant to the computation of the gain or loss to be treated for the purposes of Case VII as accruing to that person by reference thereto.
Subject to rules of court the authority and jurisdiction of the High Court may be exercised by a judge of the High Court sitting in chambers and either in vacation or in term time.


No. 68, in page 22, line 49, at the end, to insert—
Nothing in this subsection shall be interpreted as giving the Commissioners of Inland Revenue wider powers to demand information from any person than are provided under section four hundred and fourteen of the Income Tax Act, 1952.
No. 85, in page 31, line 29, at the end, to insert—
Provided that nothing in this subsection shall impose on any bank the obligation to furnish any particulars of any ordinary banking transactions between the bank and a customer carried out in the ordinary course of banking business, nor upon any solicitor, accountant or any member of a recognised Stock Exchange to furnish to the Commissioners of Inland Revenue any information with respect to the affairs of a client being information gained by him in the course of carrying out his professional duties on behalf of such client.
and No. 69, in page 31, line 29, at the end, to insert—
Nothing in this subsection shall be interpreted as giving the Commissioners of Inland Revenue wider powers to demand information from any person than are provided under section four hundred and fourteen of the Income Tax Act, 1952.

5.30 p.m.

Mr. Birch: This Clause is called supplementary, but it raises a question of considerable principle. As the hon. Member for Huddersfield, West (Mr. Wade) noticed, it raises the question of disclosure and the relations between banks and others and their customers. There has been a good deal of comment about this in the Press and some anxiety displayed, and the people whom I have found most anxious about it have been the clearing banks themselves. I understand that they have made representations through their usual channels, of which, no doubt, my right hon. and learned Friend the Chancellor of the Exchequer is aware.
What they are frightened of is what in banking terms is described as a breach of confidentiality between the bank and its customers. This confidentiality between banks and customers has been a hallowed tradition of our banking system and has, no doubt, been good for the country, good for the banks and equally good for our foreign banking business. Whether they are justified in it or not, the banks themselves think that these provisions will be damaging to their business both at home and

abroad, and if they think so themselves some weight should be given to that opinion.
It may be argued that there was a breach in the confidentiality between bank and customer in the provisions of the Income Tax Act, 1952, by which banks were obliged to furnish to the Revenue details of the deposit interest of their customers; but that case is not on all fours with this, because in the case of deposit interest the bank is a principal. It is not only the agent but the principal in that case, and if it makes that disclosure it is not making more of a disclosure than is contained in a dividend warrant. In fact, that disclosure is analogous to a dividend warrant, whereas in the case which we are now discussing the bank would be acting purely as an agent and not in any way as a principal.
The banks have no wish to protect people who are being fraudulent, and bank books can be and are inspected by the Revenue now—but only after a High Court Order. My Amendment seeks to bring in the provision that a High Court Order must also be obtained in connection with this new tax. If it is, the banks are perfectly willing that their books should be examined, because the High Court will not grant an order without sonic prima facie case that fraud or misbehaviour of some sort has occurred.
The important point to get hold of in this Clause is that it contains no mention of the word "fraud" or "concealment", or any similar term. It says:
Where it appears to the Commissioners … that a person is or may be …
liable to the tax.
After all we have heard about unit trusts, I cannot think that there is an adult in the British Isles who may not be liable to the tax. The vast majority of people may be liable. The Commissioners do not have to have a reason for thinking that someone is doing wrong. There does not have to be any allegation of fraud. This is purely a power to be able to fish without any real evidence to back up the Commissioners who need not have any reason to suppose that they will catch anything at the other end.
That is what has rather upset the banks in this matter, because once books


are open books are open. No doubt the Attorney-General will argue that the questions to be asked are fairly narrow, not very wide-ranging. But it is not easy to convince people that once the Inland Revenue can ask questions of one's bank of a quite wide-ranging nature it will not ask many more and get the answers. Once books are open they are open, and it is the view of the banks, strongly and sincerely held, that this procedure will damage their business very much and damage our banking position in the world.
I do not see any reason why the present system under the present law—quite apart from the Amendment—should not continue, so that in anything to do with the Income Tax Acts the Commissioners will have the power to apply to the courts, if they think that fraud is going on, to obtain power to examine the books. Those powers seemed amply sufficient and should be left in the hands of the Revenue, but should not be added to by the provisions of this so-called supplementary Clause.

Mr. Wade: I support the Amendments. My only reason for wishing to discuss this wider subject on the earlier Amendment was that I did not desire to be limited in any constructive proposal to advocating an application to the High Court. I do not think that that is the only procedure which may he followed. Secondly, I did not want to limit my remarks to banks, because I think that other professional men are concerned.
I have no desire to assist those who intend to evade or avoid paying taxes, but a principle is involved. We have to ask ourselves how far it is right to go in breaking this confidential relationship which affects not only banks but accountants and solicitors and probably stockbrokers.

Mr. Houghton: The hon. Member for Huddersfield, West (Mr. Wade) has spoken of breaking the confidential relationship. Surely the only question here involved is a communication of information to the Inland Revenue. There is no general breaking of the confidentiality. This is a disclosure of information to a particular authority for a particular purpose and on an extremely narrow basis. It is a mistake to convey the impression, as the right hon. Mem-

ber for Flint, West (Mr. Birch) did, that when books are open they are open as if everything were there for the world to see.

Mr. Wade: If the hon. Member for Sowerby (Mr. Houghton) will bear with me, he will see what I mean. He may not like the word "breaking" and may prefer "interfering", but there is some effect on this confidential relationship.
If the confidential relationship is affected in this way, the Revenue may be the loser in the long run, for the simple reason that there will be a reluctance to transact business through normal channels and there may be a reluctance to consult professional persons. It may be for the benefit of the Revenue to consider this provision rather carefully.
The right hon. Member for Flint, West (Mr. Birch) referred to banks. The Revenue already has some powers in this respect. Banks have to disclose interest. That is already covered by earlier Finance Acts. But, in general, if information is required from banks, some form of authority must be obtained from the courts. Where proceedings have actually been started, it is customary to make use of a subpoena served on the person at the bank who is able to provide the necessary information and bring the books to court. But there are other ways. The customer may be called upon to give, a letter of authority to the bank. That is a procedure which, I imagine, most banks would prefer, and I think that it would be preferable for the Revenue to follow that procedure.
A great deal of confidential information is given to a bank manager by his customers, and it is a good thing for this relationship to continue. I certainly would not like to see a practice growing up which would frighten the honest customer from disclosing his affairs to his bank manager. It is not only the bank manager who is affected but the solicitor also. I have here a letter from a solicitor written to my hon. Friend the Member for Bolton, West (Mr. Holt), which reads:
I have had occasion to look at the Finance Bill, and particularly Chapter 2 thereof, comprising Sections 9 to 15 inclusive. I find in Section 15, subsection (5), that for the purpose of that Chapter 2, the Commissioners of Inland Revenue may by notice serve 'on any person', require him to give information in


relation to acquisition and disposal of assets (which includes land) within that Chapter. This clearly is wide enough to include Solicitors. So far as. I know, with the possible exception of wartime legislation, and, possibly, the Official Secrets Act matters, communication between a Solicitor and his Client, certainly in relation to property transactions, is absolutely privileged and cannot be made the subject matter of disclosure to any person or authority without the consent of the Clients. This applies even in criminal matters, and is surely the basis upon which a Solicitor can discharge his duty to advise the Client, knowing that the Client without fear or favour can make the full disclosure to him.
In a later letter the same solicitor suggested that if there are to be these powers the words "Special Commissioners" might be inserted in the place of the word "Commissioners". I think that that is a point worth looking into. However, I will not pursue it.

Mr. R. T. Paget: Is the hon. Gentleman aware that the point which he is putting was put rather more succinctly some years ago by Mr. Sidney Stanley when he said that in these days of revenue snoopers the only safe place for a man to put his money was with his bookmaker?

Mr. Wade: That may well be so, but it is not a practice that I look upon with any great favour.
The intention of this Amendment is to provide that this information may only be obtained if, in the first place, an order has been granted by the court. That is one way, and, generally, I approve that principle. The alternative method is to go to the person in question and ask for a letter of authority to the bank or solicitor, or to whoever it may be. I see no objection to that.
Before concluding, perhaps I might make a general observation, as we are now reaching somewhere near the end of this debate on the capital gains tax. I believe that those who wish to avoid payment of the tax will not have much difficulty in so doing. I do not go quite as far as the article in the Economist which I have already quoted, but it is certainly clear that there has not been very much praise for these proposals. I hope that I am in order because I am about to conclude—

The Temporary Chairman: The hon. Gentleman is getting wide of the Amendment.

Mr. Wade: I am about to conclude, Sir Samuel, and I think that this is of some importance. I do not believe that hon. Members want to help people to avoid paying tax, but there is an attempt in this Amendment to hold the right kind of balance. I am sure that the powers given to the Inland Revenue should not be too wide. I think that is a fair point. The introduction of this tax is dealt with in seven very complicated Clauses, and it would be an interesting exercise to calculate the ratio of words to potential revenue. I calculate that in these Clauses there are 5,700 words.

The Temporary Chairman: The hon. Member must come back to the Amendment.

Mr. Houghton: May I ask you, Sir Samuel, whether we are considering Amendment No. 66—

The Temporary Chairman: Yes.

Mr. Houghton: —and, associated with that, Amendments Nos. 86, 68, 85 and 69? Am I right about that? If we are discussing primarily Amendment No. 66, what it does is to propose to delete certain words after the word "disposal" in line 40, page 22 to the end of line 46, that is to say, to delete from paragraph (b) of subsection (5) words which extend the first two lines regarding the furnishing of information. Therefore, we are not in this Amendment considering whether a person shall be called upon to furnish information; we are merely considering what kind of information, defined here, he may be called upon to supply. Is that right?

5.45 p.m.

The Attorney-General: It would be to the convenience of the Committee in this debate to discuss the points raised not only in this Amendment but in the other Amendments which you, Sir Samuel, said might be taken with it. That does not, of course, mean, I would respectfully submit, that one can go commenting as one likes upon the ratio between the number of words in the Bill and anything else.

The Temporary Chairman: That is why I asked the hon. Member to confine himself to the Amendment.

Sir Kenneth Pickthorn: I still am not clear in my mind, Sir Samuel, which are the Amendments. It is rather a long list and I could not get it down the first time.

The Temporary Chairman: We are discussing Amendment No. 66 together with which we are considering Amendments Nos. 86, 68, 85 and 69.

Mr. Wade: I hope that you will bear with me for a moment, Sir Samuel. I think it is a revelvant point and I will put it quite briefly.
The purpose of this Amendment is to limit in some degree the powers of the Inland Revenue tin obtaining information in respect of the Capital Gains Tax. As far as the number of words in all these Clauses are concerned—I mentioned that there were 5,700 words—I have never found so many words which achieved so little as far as the Inland Revenue is concerned. I ask the Committee to consider whether it is right when introducing this very complicated new measure to grant at the same time these new powers which, I believe, will interfere with the normal confidential relationship between a person and his banker—I have no special brief; I am just interested as a general principle—his accountant, and, maybe, his solicitor—I have some interest here because I happen to be a member of that profession. Is it wise to give these powers which, I think, fundamentally affect that principle of confidential relationship? That is the underlying purpose of this Amendment and I hope that it will receive the support of other hon. Members.

Mr. Houghton: First, I think I ought to ask the Committee to make some allowance for me in this matter because for so many years I was a spokesman of the bureaucracy of the Inland Revenue Department. Therefore, I come to a question of this kind with a certain bias That being so, the Committee must make allowances for me.
I am a little puzzled as to what we are really discussing, because Amendment No. 66, to which I referred a moment ago, proposes to delete certain words from paragraph (b) of subsection (5). As amended, this part of the subsection would read:

(a) to state whether he has acted on behalf of the first-mentioned person in connection with any acquisition or disposal of assets by that person;
(b) if so, with furnish information in his possession with respect to the acquisition or disposal.
That would be the effect of this Amendment.
The point at issue on the Amendment is not the furnishing of information, because the Amendment proposes to leave in the Bill the requirement to furnish information
in his possession with respect to the acquisition or disposal".
The point at issue in the Amendment must, therefore, be contained in the words that it proposes to delete, which are:
being information as to matters specified in the notice which are relevant to the question whether the first-mentioned person is chargeable as aforesaid by reference to the acquisition or disposal, or are relevant to the computation of the gain or loss to be treated for purposes of Case VII as accruing to that person by reference thereto;
I do not see how the words which it is proposed to leave out make any real mischief of the words that it is proposed to leave in.
I think that if a requirement is put in the Bill as to the furnishing of information in a person's possession there should be some explanation of what sort of information it is for which the authorities can ask, and this, it seems to me, is in the lines which the Amendment proposes to delete.
The right hon. Member for Flint, West (Mr. Birch) sits there writhing in some kind of mental agony. It is most distracting from this side of the Committee to see the tortures through which the right hon. Gentleman goes when someone other than himself is speaking. I ask him to bear with a point of view which may differ from his, and especially do I ask him to bear with lesser intellects than his own.
There are other Amendments associated with this one, and one of the important ones to which the hon. Member for Huddersfield, West (Mr. Wade) referred is the Amendment to page 22, line 30, which would require the Inland Revenue to apply to the High Court for an order to issue a notice for the supply of information under this Clause. It is


surely going much too far to suggest that a High Court order should be sought before someone who may have acted as an agent for someone else can be asked for a few particulars of what he did.
An application to the High Court would, I think, be appropriate if the Commissioners of Inland Revenue were asking for full disclosure of books and records and the laying bare of all particulars of this or that transaction. To have the power compulsorily to inspect books and records is very different from having the power to ask a person who may have acted as agent or nominee on behalf of some other person to render information which will enable the Inland Revenue to deal with any liability arising.

Mr. Wade: I endeavoured to make it clear that I did not regard application to the High Court as the only procedure that might be followed. I hope that there will be many cases in which the Inland Revenue will be able to obtain a letter of authority from the person concerned to the bank or to whoever it may be. I think that this would be the best procedure. I would not even object to special powers being given to the Inland Revenue if it had not already got them. Applying to the High Court is only one method that might be used.

Mr. Houghton: I am obliged to the hon. Gentleman. I have no wish to misrepresent his view on this matter.
The hon. Gentleman also suggested that it might be preferable for the Special Commissioners to be given this power. As I understand it, it is the Commissioners of Inland Revenue referred to in this Clause—which means the Commissioner of Inland Revenue—who are the body entrusted by letters patent with the administration of this whole range of taxes. It is not the local Commissioners and I think it should be made clear that it would not rest either with the local inspector of taxes. The Commissioners of Inland Revenue are mentioned here, not the surveyor or the inspector of taxes, and when powers are invested in inspectors of taxes the Act usually says so, so this is a matter in which the ultimate power rests with the Commissioners of Inland Revenue and they, from their central point, will be

able to decide what orders shall be issued, and they will be able to maintain a reasonable approach to the exercise of their powers and keep the matter under control. All this seems to be perfectly reasonable.
I know how sensitive many people are to this mystique regarding the confidential relationship between banks, solicitors, accountants, and the world at large, and the Inland Revenue in particular. I hope that the Committee will not think me biassed when I say that on the whole it is the richer people in Britain whose affairs can be kept confidential—the poor must always disclose their innermost private secrets for the benefit of bureaucracy. I hope that hon. Members will keep this matter in perspective. I am not seeking to work on anyone's emotions, but I feel that this question of confidentiality attaches to the possession of property rather than to other things in life.
Anyone applying to the National Assistance Board must produce evidence of his means. He must disclose his investments and produce his Post Office Savings Bank book. If he objects to doing this he is told, "You must not be so squeamish about your pride. This is your right. After all, before you can be given a benefit from the social service we must know what your resources are, and you should not be reluctant to disclose them."
Again, what about the confidential relationship between a worker and his employer? Goodness me, the worker not only has his pay disclosed, but has his tax taken off before he gets it. What is this nonsense about the confidentiality of people's affairs? For years before we had a tax deduction scheme all payments to a worker by way of overtime, bonuses, fees, or anything of that kind were disclosed to the Inland Revenue. This was done long before banks were required to disclose bank interests to the Inland Revenue, and I feel that if any harm is being done to banking or to professional life as an institution we ought to consider it, but that if we are concerned only with what may he conceived to be the right of the individual it has to be put in a much broader context.
If it were possible for tax to be deducted from capital at the source and


to leave the recipient to claim his relief and allowances from the Inland Revenue I should be in favour of doing it that way. After all, it is done that way with dividends. Poor people who are not liable to tax receive annuities or dividends with tax taken off at the standard rate and they have to claim repayment from the Inland Revenue.
When there is no means of deducting tax at the source, in the case of an employee the Inland Revenue writes to the employer without so much as a by-your-leave and asks for information about the earnings of that employee. The Revenue writes and asks for particulars of when an employee left, where he went, what he went to do, and any other information it needs to trace the taxpayer to his new employer. All this is a legitimate part of the duty of the Inland Revenue, and is accepted in the trade union movement and elsewhere. Tax cannot be taken off in that case. The nature of the activities enable many transactions to be undertaken without their coming to the notice of the Inland Revenue.
6.0 p.m.
Nothing I have said is intended to convey the suggestion that I am in favour of making the Inland Revenue the all-seeing eye with its finger in every poke so that we cannot do anything without the Inland Revenue being told about it. Nevertheless, there are reasonable safeguards against evasion which it is possible for this Committee to take, and I think this is one of them. I have no hesitation in sticking my neck out over this because I believe it is necessary for these powers to be in the Bill, to be reasonably used by the Commissioners of Inland Revenue—as I am sure they will be.
We do not want to lose the good will of the tax-paying public. That I regard as indispensable to the efficient administration of the tax system. There is a great deal in our Income Tax system which relies on voluntary disclosure. If this matter were pressed too far there could be a reaction on the part of taxpayers, who would say, "If that is how you conduct your business, you must find out yourselves what you want to know." That sort of thing would be very bad for the Inland Revenue. If the taxpayer were pressed in that way it would lead him to some kind of non-

payment strike. He would feel so resentful that when the Inland Revenue sent him a demand note he would not pay, and when he got the final demand note he would not pay. These things are done by taxpayers with obsessional grievances against the Revenue.
This provision is not likely to press matters too far. With wisdom and experience, both of which I am sure will be brought to bear on the administration, I do not think there is anything in the provision in the Bill to which the Committee, the taxpayers or anyone can take exception.

Sir Henry d'Avigdor-Goldsmid: The hon. Member for Sowerby (Mr. Houghton) has made his move from the back benches to the Front Opposition Bench without impairing his vigour, but also without displaying that touch of mellowness which we appreciate in hon. Members of the Front Bench. In addressing the Committee in the last few days he has been a little less than gracious to my right hon. Friend the Member for Flint, West (Mr. Birch), who made his sole contribution to the debate a few minutes ago. No doubt the hon. Member for Sowerby felt that he was scoring an important point, but he was, in fact, being rather blind and rather deaf to the amount of time which he personally has spent in contributions to this Measure and the amount of speeches which we have sat through. I do not wish to say much about the Liberal contribution. It is nice to have one and we have not had many. All I say about it is that I do not believe it advanced matters very much further.
The hon. Member for Sowerby must take this also. At one stage in one of his speeches he taunted hon. Members on this side of the Committee for speaking from prepared briefs. There is not the same expertise common to hon. Members on this side as he personally enjoys. Matters would not be raised at all in this House if they were always left to be raised by experts. If he can criticise the wording of these Amendments, that is an example of the lack of expertise and also of the desire to probe, to obtain knowledge and clarification. I do not think that the hon. Member's strictures are in this case remotely justified.
The object of my speech is simply to ask my right hon. and learned Friend the Attorney-General to tell us why he considers the provisions of Section 414 of the Income Tax Act, 1952, no longer sufficient for the purposes of this Measure. If the Committee will bear with me for a few minutes, I shall go through these provisions and draw attention to them. Under Section 414 (3, a) the Commissioners may require information relating:
to transactions with respect to which
the individual person:
is or was acting on behalf of others.
Paragraph (b) refers to transactions which the Commissioners think they should be investigating, even though those transactions may not themselves be liable to tax. Thirdly, there is the provision as to whether the subject of the inquiry is taking part in:
transactions of a description specified in the notice.
I look forward to my right hon. and learned Friend enlightening me on whether that is sufficient. Under Section 414 little protection is given under subsection (4) to solicitors and under subsection (5) to banks. My right hon. Friend mentioned banks, but I think the provision in regard to solicitors is worth mentioning also because it is very relevant.
The subsection says that a solicitor shall not be considered to have taken part in a transaction simply by virtue of having given advice. He cannot be compelled to disclose that advice except with the consent of his client. Without the consent of his client he can be compelled only to state that he has been acting in the matter and to furnish the names and addresses of the clients, also the names and addresses of the transferor and transferee, the names and addresses of bodies corporate and, in the case of a settlement, the names and addresses of the settlor and the recipient.
Under subsection (5) a bank is under no obligation to furnish particulars of any ordinary banking transactions between a bank and a customer carried out in the ordinary course of banking business, unless the bank is acting on behalf of the customer in connection either with the formation or management of a body corporate or in connection

with the creation or execution of a trust in a settlement.
Since 1952 I have not heard that these powers have proved insufficient for the Revenue, or that that has been brought to the notice of the House in any way. I ask whoever is to reply to this debate whether the powers granted under the 1952 Act are no longer considered suffficient and, secondly, if they are to apply, not only to Case VII but to all matters arising under Income Tax law in future. I think the Committee is entitled to a reply on those questions.

Mr. Glenvil Hall: I hope that my hon. Friend the Member for Sowerby (Mr. Houghton) will not mind when I say that his enthusiasm for the service he once adorned is not entirely reciprocated by some of the rest of us. The Inland Revenue, like the rest of mankind, is composed of some who are very good, some who are good and some who are not so good. That naturally applies to us all.
The question arises whether the powers which these words we are now discussing give to the Inland Revenue are essential. Like the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), I shall await with interest what the Attorney-General has to say on that. If they are essential I would accept them, but I am glad that this matter has been raised because they are sweeping powers and unless they are absolutely necessary it would be a pity for this Committee to give any Government Department such powers as are envisaged.
Although I have tried, I still cannot envisage the circumstances in which the Inland Revenue would approach the individuals mentioned in the subsection. What information will the Commissioners go on? It seems that it must in all eases be a kind of fishing expedition.

The Attorney-General: The Attorney-General indicated dissent.

Mr. Glenvil Hall: I am glad to see the right hon. and learned Attorney-General shake his head. If that is the case, what information will the Commissioners go on? So many thousands and thousands of transactions take place every year on the Stock Exchange that unless individual stockbrokers or stock jabbers are asked to make a periodical


return, I do not see how the Inland Revenue will be able to pick out the people to approach. For that reason alone I await with interest what the Attorney-General has to say.
I am sure that I am speaking for many hon. Members when I say that the provisions of the Clause are exceedingly sweeping. The Inland Revenue now possesses considerable powers under other enactments, and it would be a pity to add to them unless it was essential. I shall wait with interest to be told whether it is necessary for these powers to be given to the Inland Revenue.

Mr. du Cann: I entirely agree with the right hon. Member for Colne Valley (Mr. Glenvil Hall) in supporting what my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) said. He asked why these additional powers were required. I also agree with my right hon. Friend the Member for Flint, West (Mr. Birch) when he said that an important matter of principle is involved here. That is felt both in the Committee and outside. The case has been very well deployed, and I do not want to add to it except to cover one or two matters of detail.
It is now clearly established that we are discussing no less than five Amendments, one of which makes the suggestion that information should be given to the subject when an investigation of this sort is conducted. I hope that my right hon. and learned Friend will think that a proper suggestion to make, and will comment upon it. I hope that he will also find himself able to comment on the fact that these Amendments cover not only Clause 15 but Clause 20. Perhaps he will explain precisely what is involved, in this limited context, in the provisions of Clause 20 as drafted.
We have talked a good deal about banks, and solicitors have also been mentioned. But there are many other classes of agent. Stockbrokers and accountants have not been mentioned, and other professions can be added. I hope that my right hon. and learned Friend will not take the view that this is a narrow matter, merely affecting banking people.

Mr. Wade: I mentioned accountants and stockbrokers. I was not restricting the field.

Mr. du Cann: I beg the hon. Member's pardon. I did not hear him. The general point is none the less valid. Banks are in a special category, but there is a wide class of agents in general.
No hon. Member would object to giving the Inland Revenue—whether its servants be good, bad or indifferent—such powers as may be appropriate to deal with any tax evasion. On the other hand, every hon. Member, perhaps excepting the hon. Member for Sowerby (Mr. Houghton)—if I may pull his leg—who declared a special prejudice in the matter, would be adverse to giving the Inland Revenue powers which amount to snooping in any sense. To those who drafted and tabled the Amendments it seemed that the point amounted to this. Nobody objects to the police having powers to search the house or flat of a suspected wrongdoer, but we believe it right that the police should first be obliged to obtain a search warrant for the purpose. The suggestion that a High Court order should be obtained is analogous to that situation. We think that it is the right way to go about things.
It cannot be right to give the Inland Revenue exhaustive powers unless, on the other hand, there are certain safeguards. There is one difficulty. One does not usually wish the examination of a persons' private affairs to take place in the spotlight of publicity which an application for a court order would necessarily involve. A very important point of principle is involved here, which affects many people.
It may be, as the hon. Member for Sowerbry indicated, that the Amendments are not necessarily the best which could have been tabled. None the less, I hope that my right hon. and learned Friend will assure us, above all, that these powers will never be used irresponsibly, and that, perhaps on Report, he will consider carefully writing such safeguards into the Bill as will ensure not only that that position can never arise but that it will be seen never to be able to arise.

6.15 p.m.

Mr. Bellenger: If what the hon. Member for Taunton (Mr. du Cann) has said is all that the supporters of the Amendment want there should not be much


difficulty in obtaining from the Attorney-General the assurances that have been asked for. I rise only to put a point of view which is not entirely in agreement with that expressed by my hon. Friend the Member for Sowerby (Mr. Houghton). The strictures made upon my hon. Friend's speech by the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) were a little unfair—although the hon. Member may not perhaps have understood the context of my hon. Friend's remarks in relation to applications for public assistance. We know only too well the exhaustive inquiries that are made in these cases. I do not always advise my constituents in the way that my hon. Friend the Member for Sowerby apparently does. Whether the authorities be the Commissioners of Inland Revenue or those who adjudicate in matters of public assistance they are entitled only to sufficient information as will enable them to do their job. I can well understand my hon. Friend's emotion when he speaks about public assistance, but we can carry that too far.
My hon. Friend referred to his original vocation. I look upon all these gentlemen, including my hon. Friend—although he has now apparently seen the error of his ways—with a good deal of suspicion. It is not merely a case of a taxpayer wanting to defraud the Inland Revenue; it is often a case of his being afraid that the Inland Revenue will make him pay to the last penny, as it can if it wants to. I agree that it does not always act like Shylock, but the taxpayer is liable to say, "Why should I lay bare every fact of my personal relationships in respect of Income Tax?" It is up to the Inland Revenue to decide whether a person should be a taxpayer and, if he should be, how much he should pay. For that purpose the Commissioners are entitled to ask the taxpayer to make a voluntary declaration of his income.
But there are many gentleman about—some of them are called stags—who, without much capital, can make considerable profits. Until stockbrokers put a bar on bouncing cheques, and made then encashable when applications were made for new shares, these stags could make tax-free profits without putting down any capital. Nowadays. during the time between the lodging of

the application and allocation of the shares and their first regisration the stag can get off with quite a lot of profit without declaring it.
I cannot see how the Commissioners can know about that, even if they have a suspicion of it, unless they ask for the information. Their proper purpose should be to ask the taxpayer, the individual they suspect to have made a taxable income, to declare it. If the taxpayer does not declare it—and many of them do not—the Commissioners are entitled to take steps to see whether the individual has made a profit.
It is incumbent upon estate agents and those who manage property—and property capital gains will be taxable under the Bill—to declare to the Inland Revenue periodically the commissions that they undertake for individuals or corporations. I cannot see that there is much difference in asking, for example, a stockbroker to say whether a certain client, whom the Inland Revenue suspects to have made a substantial sum of money by dealings in stocks and shares has, in fact, done so, and asking that stockbroker or other agent acting on behalf of the individual taxpayer to declare the nature of the transactions in which he has been engaged on behalf of that taxpayer.
Like my right hon. Friend the Member for Colne Valley (Mr. Glenvil Hall) and, indeed, my hon. Friend the Member for Sowerby, who in his concluding remarks had, as it were, an arrière-pensée about the powers of the Inland Revenue, I do not want the Inland Revenue to pursue taxpayers or individuals unduly. All that I want is for the Inland Revenue to have adequate powers.
So far as I can understand the arguments advanced by hon. Members opposite, they seem to think that the Inland Revenue has adequate powers under a previous Finance Act, Perhaps the Attorney-General will tell us if that is so. If it has not, and I presume that it has not otherwise these provisions would not be incorporated in the Bill, it will be up to us to see whether hon. Members are right in their suspicion that the Inland Revenue is not only to get its just due—its pound of flesh—but the blood connected with it. I think that the Committee would be justified in saying, "You do not go as far as that;


all you are entitled to do is to pursue your job adequately and no more than that."

Mr. John Howard: I hope that when my right hon. Friend replies to the debate on this group of Amendments he will throw some light on the position of the agent, that is to say, the adviser to the taxpayer. Accountants and solicitors have been mentioned. I should disclose my interest in that I am an accountant. The fact that there is need for clarification is quite clear from a leading article in the Accountant dated 12th May. In that article the leader writer referred to the comments of the Chief Secretary to the Treasury when he was discussing Clause 15 (5). I quote what it said:
If the Inland Revenue thinks that a false return has been made it can ask for simple factual information, that is to say particulars of purchases or sales in which the agent concerned has acted on behalf of a named client.
The Accountant went on to comment:
… it does seem that there is at present no intention to have the Inland Revenue asking accountants and other tax advisers about advice they have given in relation to short-term transactions. That being so. one is tempted to ask why Clause 15 (5) has been so worded as to give power to require information from any person who has acted on behalf of the taxpayer 'in connection with any acquisition or disposal of assets by that person'. The phrase in connection with' is just about as wide a phrase as could possibly be used, and would certainly cover the giving of advice in relation to the transaction.
I think that makes it clear that the accountancy profession has some qualification about its obligations under this Clause.
There is a further point, since it is assumed that these powers are rather wide, in that extensive information may have to be extracted by a small practitioner, either a solicitor or an accountant. The question arises who is to pay the cost of obtaining that information. A managing clerk may be engaged on securing the information over some weeks. Is it the Inland Revenue or the taxpayer client who pays? Again, a client may refuse to pay or he may not even be a client at the time that the information is required, and in either case he may have issued no instructions either to his accountant or to his solicitor.
If the powers under the Clause are to be retained in this wide form it would seem only fair that the professional adviser should be given the right to charge the Inland Revenue if his taxpayer client does not issue him with the necessary instructions to get the information. If the inquiry which the Inland Revenue had instituted was justified, presumably the Inland Revenue could take powers to recoup its costs and pay off the legal adviser of the taxpayer, apart from any penalties or tax demanded. I hope that my right hon. and learned Friend will be able to throw light on this because it is of very real concern to practitioners, particularly the small practitioner.

Sir K. Pickthorn: I think that every hon. Member who has spoken in the debate so far has been an expert witness of one kind or another. This debate, which is admittedly an extension of an exception to a general principle of English law and life, ought to be discussed by those who are not experts in the technicalities involved. Therefore, I do not promise that I shall not try, later on, to make a much longer speech and to ask a good many questions.
For the moment I want to say only one thing. I agree wholly with those of my hon. and right hon. Friends who have supported these Amendments, except on one point. More than one of them, I think, asked for assurances from the Front Bench. My own belief and experience is that Ministerial assurances about legislation are always deceptive and often really insulting. The business of the Treasury Bench in passing this kind of legislation is to assure us, as honestly as it is capable, that words we are being asked to put in the Statute will have such and such effect and no further.
I hope very much that the Governmental reply we get to these Amendments will make it quite clear to us what a person is, what information is, what relevant is and why, especially, paragraph (b) has to be so very tortuous in its verbiage, and because of or in spite of the questions which I put in my last sentence, he will also explain to us how it is that the words, if passed, will have the minimum effect upon the freedom of the individual and, for that matter, upon the superfluous work which may be


imposed on any person whether or not a banker, a solicitor, average adjuster or whatever it may be.

6.30 p.m.

Mr. John E. Talbot: I should not attempt to cover all the points so well made were I not aware of the great concern that the Council of the Law Society, the governing body of the solicitors' branch of the legal profession, feels about this matter. We are now, in principle, breaching something which has been a feature of English law for hundreds of years; that communications between solicitor and client and also, of course, between client and learned counsel, are privileged, and that the privilege is that of the client and not of the solicitor or counsel.
I wander whether the Committee appreciates sufficiently that every day of the week inspectors of taxes are writing to solicitors and accountants for information, and getting it, and that there is no need to suppose that either of those professions will enter into a conspiracy with their clients in order that tax evasion may take place? Certainly in the case of the solicitors, they are officers of the court, and it is their duty as such to support the law in all its aspects. I think that we may regard it as unthinkable—except in the odd case of the man who fails to discharge his professional duty—that any solicitor would conspire with a client in order to evade taxation.
The distinction is perfectly well understood between what is evasion and what is avoidance. It is lawful, and I hope that it always will be, for a man to consult a professional man and obtain advice about how not to incur a liability. But this seeks to take the matter one degree further. It invites the imposition of a liability by Parliament directly on the professional man at the moment that he acts on behalf of his client, and it is his duty to supply information that the client gives to him. But we are going such a stage further in this matter as will have grave long-term effects upon the reputation of the professional man as regards his client.
If under this Bill the solicitor is to act as an unpaid spy for the Inland Revenue in these matters, can we explain, with any hope of it getting

across to the ordinary man and woman, why a solicitor should not also be the spy of the Inland Revenue in any other matter? I feel that here we are making a very dangerous inroad into a long-established principle. I sincerely hope that the Government will have second thoughts about this matter. I want them to think whether it is really necessary to impose this code whereby a professional man is under a direct personal responsibility to report to the Revenue what his client is doing.
There are ample powers in the Income Tax Acts for getting information from the proper person—the taxpayer. It may be that the taxpayer will want help from some professional source, but it is quite another thing to ask a professional man, under the penalties of the Income Tax Acts, to disclose facts about somebody who may not be a client and who may have an explanation to give in relation to the facts which is wholly unknown to the professional man. There is grave danger that incorect information will be given by the use of the powers in this Bill.
I wish to refer to the Amendment in the name of my right hon. Friend the Member for Flint, West (Mr. Birch), to which I have added my name, to the effect that the person giving the information, if he must give it, should be under a statutory liability to tell the person concerned what he is doing and what he has done. I know of several cases where grave embarrassment has been caused by banks making returns of interest to the Inland Revenue without telling the customer. I sincerely hope that under these arrangements, or such arrangements as one hopes may be modified as a result of the almost unanimous feelings of doubt expressed by this Committee, any such information will not be disclosed without direct notification to the person affected.

Mr. Gower: As has been indicated, this Clause, without the proposed Amendments, goes very far and cuts right across the relationship between solicitor and client. Like other hon. Members, I have to declare an interest in that I am a solicitor. The Clause outs right across the long-established relationship to which I have referred.


But the hon. Member for Sowerby (Mr. Houghton) did not regard that relationship as of any importance. He seemed to suggest that the relationship between the taxpayer and his adviser was something the importance of which had in the past been hopelessly exaggerated. That can hardly be the view of my right hon. Friend. I am sure that he regards this relationship as of tremendous importance.
I can well imagine that had a Labour Government sought such powers as these there would have been an uproar from the Opposition benches. So there is a formidable onus on the Government to establish the absolute need for these very wide-ranging powers. I shall expect, as I am sure will my hon. Friends, a very convincing answer about why the powers referred to by my hon. Friend the Member for Walsall, South (Sir H. d'AvigdorGoldsmid) are in some way inadequate. I cannot see why they should be inadequate. If my right hon. and learned Friend insists on retaining the Clause in its present form I hope that we may be told about it.

The Attorney-General: I have listened with interest to the views expressed during this debate. I think it is common ground that there is considerable concern, and not in this Committee alone, that the powers that this subsection gives to the Inland Revenue are too wide and oppressive. My hon. Friend the Member for Taunton (Mr. du Cann) said that he would support such powers as are appropriate to deal with tax evasion. I hope to be able to persuade him that the powers taken in this Clause are necessary and do not go beyond what is necessary.
I think it right and proper that any Clause of this kind conferring these kinds of powers on the Inland Revenue, or upon any other body, should be subjected to close and critical examination. I hope that I may begin my reply on the basis that the Committee accepts the proposition that there must be, somewhere or other, some power in the Revenue to find out the facts if evasion of liability under Case VII is to be avoided. I hope that that will be accepted, although I know it has been suggested in some quarters, but not in the debate today, that no power of inquiry is needed; and that all the

Revenue need do is to raise an assessment and leave it to the taxpayer to challenge it. I will deal with that point later.
I should like to proceed on the basis that the Revenue should have some power of inquiry so as to check up in appropriate cases the returns which are made in order to prevent tax evasion. In his Budget statement my right hon. and learned Friend the Chancellor of the Exchequer said that the Revenue would rely primarily upon the ordinary Income Tax return which will include a section for the report of chargeable matters under Case VII, and that is so. The first step will be the return by the taxpayer. But where the Revenue has reason to doubt the accuracy of the return, either on account of an omission from the return of a Case VII transaction—the Revenue may think that one should have been included but there is no entry of one at all—or if it has reason to doubt the accuracy of the return as to the extent of the gain from the transaction, or the losses claimed to be set off against the transaction, it seems to me reasonable that the Revenue should have power to make inquiries, limited to those matters alone, for the purpose of checking the returns and preventing evasion.
I hope that I have been able to carry the members of the Committee with me so far. I want to turn now to the subsection in question and say a little about what it does and what it does not do.

Mr. J. Howard: Before my right hon. and learned Friend goes on to that, may I ask who is to decide the extent of these inquiries and whether they are relevant?

The Attorney-General: I want to take this matter in order. I will come to deal with how it will be operated. Recognising the need for a power I want now to come to subsection (5) and see what it does and does not do. Judging by some of the remarks which have been made about the subsection, there is a considerable misconception about its effect.
First, paragraph (a) limits the inquiry to an inquiry to a person
to state whether he has acted on behalf of the first-mentioned person in connection with any acquisition or disposal of assets by that person".


The first point to be noted there is that the inquiry must be made in relation to a named person. That is a very important limitation. It will not be open to the Revenue to direct a general inquiry to banks, stockbrokers and solicitors asking for a return from them of all Case VII transactions effected by them for clients. That will not be possible.
There are plenty of precedents on the Statute Book giving the Inland Revenue power to ask for returns. Under Section 27 of the Income Tax Act, 1952, a return can be required from any employer of the names of all his employees and of the payments made to them. That power was first given in 1907. The power now extends to payments to directors and employees and in respect of expenses and benefits in kind to directors and highly-paid employees as well.
Under Section 20 of the Finance Act, 1956, Inspectors of Taxes are given power—I ask hon. Members to note that this power is given by that Act, not to the Commissioners of Inland Revenue, that is to say, what one might ordinarily call the Board of Inland Revenue, but to Inspectors—to call for returns of payments of any kind for services rendered by persons who are not employees. Under Section 22 of the Income Tax Act, 1952, a person who receives taxable income on behalf of another may be required to render a return of it. Such income would include fees and royalties received by literary agents on behalf of authors, and income received on behalf of a person by solicitors and other professional men. Solicitors can be called upon to make a return.
The point I want to make clear is that the Revenue is not seeking here to get any power to call for returns. All it seeks to have is power to make inquiries in relation to named persons. I want to emphasise that this power will not be exercised in relation to names selected haphazardly. I hope that it will not be thought that I am giving an assurance which is either deceptive or insulting, to take the words of my hon. Friend the Member for Carlton (Sir K. Pick-thorn). It will in fact be exercised only—I think that this deals with the point raised by my hon. Friend the Member for Southampton, Test (Mr. J. Howard)

—when the Revenue, doubting the accuracy of the return made by the taxpayer, thinks it reasonable to check the return. When I say "the Revenue", I refer to the Board of Inland Revenue.

Mr. Glenvil Hall: Not the inspector.

The Attorney-General: No, not the inspector. The contrast between the 1956 Act, and what we propose is very significant. We are saying here that the Commissioners of Inland Revenue, the Board, will be able, first, to make under paragraph (a) the inquiry in relation to a named person of any other person, "Have you acted for so-and-so in connection with any acquisition or disposal of assets by him?"
6.45 p.m.
My hon. Friend the Member for Southampton, Test suggested that the phrase
in connection with any acquisition or disposal of assets by that person
in paragraph (a) is so wide as to enable the Inland Revenue to inquire what advice had been given. I ask my hon. Friend to read the words again because, in my submission, it is perfectly clear under paragraph (a) that all that can be asked in the first place is, "Have you acted on behalf of Mr. X in connection with any acquisition or disposal of assets by him?" There is no power to ask under that provision, "What advice have you given Mr. X? What were his instructions to you?" The first stage is, "Have you acted for him in connection with anything of that kind?"
I turn to paragraph (b). This is a very important provision, because it defines what information can be sought. The information that can be sought falls under two heads specified in the paragraph—
information … relevant to the question whether the first-mentioned person"—
that is, the named person—
is chargeable … by reference to the acquisition or disposal, or … relevant to the computation of the gain or loss.
I feel that some of the fears expressed may be due to the use of the word "relevant" in these two places. The Amendment would remove the word in question because, as the hon. Member for Sowerby (Mr. Houghton) pointed out, the Amendment would delete all


the words after "disposal" in line 40. Some of the fears may have arisen about what the word "relevant" really covers. There may be fears that it covers more than is necessary for the Revenue to obtain.
I ask the Committee to consider what it is that the Revenue would want to obtain in order to check the accuracy of a return under Case VII. First, all that the Revenue would want would be factual information—not advice; not what was said by a client to his solicitor or by the solicitor to his client; not what was said between a banker and his customer; not what was said between a stockbroker and his client. What the Revenue would want to ask would be this, for instance. "Did you on behalf of Mr. so-and-so buy some shares, Or did he buy through you some shares and sell them within six months?", or, "Did you on his behalf or acting for him buy an interest in land for him and sell it within three years?" That is the kind of factual information which is required to determine chargeability. Was an asset bought? When was it bought? What was it bought for? That would come into the computation of gain or loss. When was it sold? What was the price received? What are the expenses to be deducted from the price received?
Again, the Revenue will want under the second head factual information to determine quantum, to determine the amount of the gain and the amount of any losses sought to be set off against it. The Committee will remember that losses from previous years under Case VII can be set off. That is factual information which will be required in, I would suggest, a very narrow and limited field.

K. Pickthorn: My right hon. and learned Friend has said several times that this is what the Inland Revenue will want, or that this is the information that it will require. Can he assure us that the Bill as drafted means that not only is that all that it will want but all that it will be entitled to ask for?

Attorney-General: I am rather hesitant, after what my hon. Friend has said, about giving him any assurance at all but, despite his threatening words, I will say this to him, because I was about

to come to it. I will consider closely between now and Report whether what is sought for by the Revenue can be more closely defined. I want to make it quite clear that the aim of the Revenue in this Clause is to be able to check upon the facts so as to ascertain liability or non-liability to a Case VII charge and, if there is any question of liability to a Case VII charge, to ascertain the facts from which the tax liability can be properly computed.
The power to obtain information is intended to be, and should be, and in my view is, limited by this Clause to that, but, as I have said to my hon. Friend, and I will repeat it, I think that the difficulty may have arisen in people's minds because of the use of the word "relevant," and determining, perhaps, what is meant and covered by "relevant". Therefore, if one can, between now and Report, find words that spell out with a greater degree of precision what is "relevant", perhaps one can go a good way to allaying the fears expressed by my hon. Friend. Whether or not one can do that I do not know at the moment, but I will give the assurance that I will certainly consider it, and will try to do so before that stage comes—

Mr. Glenvil Hall: I am sure that the Committee will be very grateful for that assurance. Will the right hon. and learned Attorney-General, at the same time, consider whether he can tighten the wording to make it quite clear that it is Commissioners and not individual inspectors of taxes who can demand the information; that it has to be done at the instigation of the Board?

The Attorney-General: I think that is already clear from line 30, where it says:
Where is appears to the Commissioners of Inland Revenue…
It does not say General Commissioners —when we refer to them we generally use that word—and it does not say Special Commissioners. Commissioners of Inland Revenue is common form for the Board. But it must not be thought that when we say we give the powers to the Board, the inspector is meant. The inspector, as far as I am aware, is always specifically referred to. But I shall come to that point in a moment, because it is a matter of some importance—

Mr. Callaghan: As a layman, when I read paragraph (b) I thought that the Amendment in line 40 would, in fact, make the powers of the Revenue wider. I had interpreted the words from "being information" onwards as limiting the sort of information the Revenue could ask for. Is that the Attorney-General's view?

The Attorney-General: I entirely agree, if one takes that Amendment by itself. I intended to mention that. It was obviously not the intention of my hon. Friends in moving the Amendment to remove the words of limitation in paragraph (b) as to the kind of information that could be obtained but, by a later Amendment, they seek to attract Section 414, which contains certain restrictions in regard to solicitors and bankers. I intended to deal with that, but I want to make the following point.
The right hon. Member for Colne Valley (Mr. Glenvil Hall) talked about sweeping powers and wide-reaching powers, but what is sought here is considerably less than a power to secure a return of all transactions. It is far less than the power given in the 1952 Act to the Commissioners to serve a notice on any person who has held securities requiring him to give them such particulars as they may require to deal with bond washing, and to inform them of the interest paid on securities. One sees how much wider and further that goes than does this.
Having said all that about the Clause and what it is intended to achieve, I submit to the Committee that the powers sought are necessary, and do not go beyond what is necessary, in order to secure a proper check. One cannot tell how often the Board will require to use these powers; I should myself think that it would not be necessary on many occasions, because the fact that the Board possesses these powers, if the Committee gives them, is a great sanction for securing an accurate return by the taxpayer in the first place, but those powers should, I think, be there.
As I said a moment ago, it has been suggested that it is not necessary for the Revenue to take any new powers; that all that it is necessary to do is to levy the assessment and let the taxpayer appeal against it; and that if the assessment is wrong the taxpayer can,

and will, appeal against it. Sir Robert, it is one thing to raise an assessment where one knows that a man is carrying on a trade, or a profession or an activity; it is quite another thing to raise an assessment out of the blue when one really does not know whether he has or has not engaged in a chargeable transaction. There would be no basis for estimating the gain for the purposes of the assessment, and if he appealed, and asserted that he had not made a gain under Case VII, the Revenue would not be able to challenge that unless it had powers to obtain information from others. That brings us back to the question: should the Revenue have power to obtain that information? I do not think that it would have sufficed to have relied on the assessment-making powers.
It was asked by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), "Why not attract the powers contained in Section 414? Why are those powers not sufficient?" The Amendment we are now considering seeks to attract those powers. It really will not suffice to attract Section 414, as becomes apparent when we examine it. The Section confers on the Special Commissioners wide powers to obtain
…such information as they think necessary …
that is pretty wide—to counter the avoidance of tax by the transfer of assets abroad. They can call for information from any person about transactions in which he has acted on behalf of others where they think it proper to investigate the transaction. It is true that subsection (4), to which my hon. Friend referred, limits the information which can be given by solicitors to giving the name of his client, and the names and addresses of transferors and transferees, of certain bodies corporate and of settlors and beneficaries under certain trusts, but that information would not suffice for the purposes of Case VII.
Despite what my hon. Friend the Member for Brierley Hill (Mr. Talbot) said, I think that there is no question of the invasion of a client's privilege of communication with his solicitor, or the invasion of the privilege that exists between solicitor and counsel. There is no question here of ascertaining what was the advice given by the solicitor, or the instructions given by the client. All that is required is, as I have indicated.


factual information of the character I have mentioned.
In regard to banks, subsection (5) of Section 414 makes it clear that no obligation is imposed by that Section on banks
…to furnish any particulars of any ordinary banking transactions… carried out in the ordinary course of banking business …
It may well be that banks would regard the purchase and sale of shares on behalf of their customers as an ordinary banking transaction carried out in the ordinary course of banking business, but I am not sure that the Inland Revenue would accept that or that the courts would agree with it. However that may be, I do not think that we would want any uncertainty about the position and I do not think that the purchase and sale of interests in land could be so regarded.
7.0 p.m.
Hon. Members should bear in mind the strictly factual and limited character of the information that is necessary and will be required by the Inland Revenue and I must say that I do not think that the securing of this information could probably be said to constitute a great inroad into the confidential relationship between banks and customers and solicitors and clients. I ask the Committee to consider these questions. I recognise, as I think we all do, that there is real public interest in maintaining the confidential relationship between banker and customer and solicitor and client, but could the drawing of a distinction between banks and solicitors on the one hand and estate agents and other professional men on the other with regard to the provision of information of the character required here possibly be justified? I do not see how it could be.
If solicitors and banks were relieved of the duty to give this limited information then all those who sought to escape Case VII liability would go to them and to no one else. I wish to emphasise that I share the concern that has been expressed by my hon. Friends about seeing that the Inland Revenue does not get more power than it really needs. This is the right approach we should have to the question of giving more powers. I share their anxiety that

financial confidential relationships should be maintained. Nevertheless, we should bear in mind the strictly limited factual information that can be obtained.
I do not think that the Revenue can really work with any less such information, and I do not feel that, so long as it is limited to this factual information, the principle of confidentiality is materially affected. I ask the Committee to bear in mind that these powers are to be vested in the Commissioners. I myself have heard no complaint of the exercise by inspectors of their powers under the Statute of 1956 but it is a further safeguard to secure the proper use and to prevent abuse of these powers that they should be vested in the Commissioners of the Inland Revenue.
I have dealt at same length with the various points that have been raised, but there are two further matters with which I should lake to deal. The first concerns the point raised by my right hon. Friend the Member for Flint, West (Mr. Birch) when he urged, in a short but clear speech, that the power of asking any agent for information should be exercisable only on an order from the High Court. I really think that that is asking too much at this stage because there is really no precedent for it. He sought to base that proposition on the fact that under the Bankers Books Evidence Act one can get copies of a customer's bank account.
The right hon. Member for Flint, West said twice in his speech that once books are open, books are open. But we are not seeking here and we do not want to get the books open or to get a copy of the whole account to determine whether or not there is chargeability under Case VII and the extent of liabibity involved. The Revenue is asking for much less than that.
It is true that in legal proceedings one can rely on that Act. It is still a question for argument whether the raising of an assessment amounts to a legal proceeding. I should be more inclined to agree with my right hon. Friend if there was anything in the nature of a roving commission being entrusted to the Inland Revenue. When one studies paragraphs (a) and (b) one sees that the inquiry must be directed only to a named person and limited to the two heads I have mentioned.
The second point with which I wish to deal concerns the Amendment in the name of the right hon. Member for Flint. West in page 22, line 46, where it is suggested that we should, in the Statute, place an obligation on the person who is asked for the information to inform his client of the fact and to supply those particulars to the client. I see the point of that but I do not think that it is wise to accept that proposition as it stands because accepting the Amendment as it is, imposing that legal obligation, would expose the agent—the stockbroker, solicitor or banker—to a prosecution for a penalty if he failed to take that step.
It would be much better to leave it—without putting an obligation on the solicitor or banker to communicate—to their common sense to do so. I feel sure that the vast majority of them, if they had an inquiry of this kind from the Inland Revenue about a transaction of this kind in a particular period, would feel it their duty to report it to the person concerned.
I hope that I have dealt with all the points that have been raised. I feel that it is wrong to say that the Revenue is asking for more powers than are necessary. I will certainly see if we can alter the wording of paragraph (b) to make it clearer what is covered by the word "relevant" in each place but I feel that the need for power to inquire is established. While saying that I hope that my hon. Friends, who obviously have given this matter great consideration and, as a result, have put forward this series of Amendments, will realise that we will consider most carefully the views that have been expressed by them and the suggestions they have put forward, for we share with them the feeling and belief that it is not desirable in the public interest to make an infringement in the principle of confidentiality.
If we must make a breach at all, in the greater public interest—perhaps to prevent wholesale tax evasion—it must be limited to the narrowest possible limit. l do not feel that merely asking for this factual information can be said to be a breach of the client's privilege when he instructs a solicitor, or that it is a breach of the confidentiality that exists and should exist between banker and customer. We shall consider what

has been said but I cannot go further than what I have said at this stage.

Mr. Birch: I thank the Attorney-General for what he has said although, at the end of the day, I fear that we have not got much more than an undertaking to attempt to define the word "relevant". On the other hand, that may be of some use. A great many people have read much more into the Clause than the Attorney-General said it means. As they are mostly professional people, that would seem to indicate that something might be done about the drafting. I do not necessarily say that I will not return to this matter on Report. It is all very well to say that it is not an unlimited right to fish but, according to the Bill as at present drafted, one does not even have to suspect that someone is defrauding the Revenue. It would seem, therefore, that it goes a very long way. Having said that, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

The Temporary Chairman (Mr. F. Blackburn): The next Amendment selected is that in the name of the right hon. Member for Flint, West (Mr. Birch), in page 22, line 46, at end insert:
(c) the person in question shall supply to the person on whose behalf he has acted full particulars of the information he has furnished to the Commissioners of Inland Revenue under paragraph (b) of this subsection.

Mr. du Cann: We have already had some discussion on this Amendment and the Attorney-General gave an undertaking within the last few minutes to look at the series of Amendments relating to Clause 15. In the circumstances, my hon. Friends and I have no wish to move the Amendment.

Clause, as amended, ordered to stand part of the Bill.

Orders of the Day — Ninth Schedule.—(MISCELLANEOUS RULES APPLICABLE TO CASE VII OF SCHEDULE D.)

The Economic Secretary to the Treasury (Mr. Anthony Barber): I beg to move, in page 52, line 48, after "this" to insert: "or the last foregoing".
This Amendment merely corrects an error in the drafting. If the Amendment were not passed it would be possible for


the Bill to operate in such a way that an individual might be treated as having disposed of property before his death in consequence of events which, in fact, did not occur till after he died.

Amendment agreed to.

Further Amendments made: In page 53, line 35, at end insert:
('shares' having for this purpose the same meaning as in that section)".
In page 54, line 13, leave out "(6)" and insert "(8)"—[Mr. Barber.]

Sir H. d'Avigdor-Goldsmid: I beg to move, in page 57, line 5, to leave out "earlier" and to insert "later".

The Temporary Chairman: With this Amendment can be taken the Amendments in page 57, line 6, leave out "later" and insert "earlier". and in page 57, leave out lines 7 to 9.

Sir H. d'Avigdor-Goldsmid: The purpose of these Amendments is to obtain clarification. They deal with the paragraph in this Schedule which is concerned with the sale of shares when a larger number than the amount sold are already in possession of the holder.
Suppose the holder of a large amount of shares in a certain company had acquired them before the relevant date, and subsequently bought more. If he were allowed to argue that any shares he subsequently sold came out of his pre-tax stock rather than those that were subsequently acquired, it would entirely neutralise the provisions of the Bill. That seems to me to be a perfectly good common sense view. I therefore cannot quarrel in any way with paragraph 8(6,a) which says that in describing the shares as sold they shall be
identified … with shares acquired within the six months preceding the disposal … rather than with shares not so acquired.…
That seems to me to make perfect sense. It goes on to say:
and with shares so acquired on an earlier date rather than with shares so acquired on a later …
Therefore, provided they are caught by the six months period, the shares disposed of are equated with those bought at the earliest date.
We then go on in (b) to produce the different principle that subject to the foregoing, the shares disposed of are:

shares acquired on a later date rather than with shares acquired on an earlier …
It would seem to me that this requires clarification, because the intention is obscure.
The principle of "last in first out" is one that we understand, and so also is the principle of "first in first out". But here we have a provision where we have in sub-paragraph (a) the principle of "first in first out" followed by sub-paragraph (b) where we have the principle of "last in first out". I think the taxpayer ought to be able to make out his tax return without having to consult the Act in detail. For that reason I am asking my hon. Friend for clarification.

7.15 p.m.

Mr. Barber: I am very happy to do my best to explain the purpose behind the rules which are laid down in paragraph 8 (6) of this Schedule.
The Amendments which my hon. Friend has on the Order Paper would, as he has indicated, alter the general rule which is laid down in this paragraph. The rules contained in paragraph 8, which apply to all assets which can be dealt in without identification as well as to shares, are needed for the reasons which my hon. Friend has mentioned. Indeed, I think they are obvious to the Committee and I need not go over that ground.
The general rule in sub-paragraph (6), on which my hon. Friend concentrated, is that shares disposed of are treated as coming, first, out of the earliest acquisition made within six months of the disposal and then out of succeeding acquisitions made within the six months.
Then there comes the rule which puzzled my hon. Friend, a rule which is required because shares bought outside the six months period might give rise to a charge, on a disposal, under the provisions of Clause 13 which we passed the other day. That rule is that among shares acquired outside the six months period a disposal is to be identified as being of the shares latest acquired. I quite agree that, on the face of it, it seems odd that one should have one rule which is applicable, broadly speaking, for dealings within the six months period and another rule for dealings outside the six months period.
The reason that it is necessary at all to have a rule for transactions outside


the six months period is that in connection with Clause 13 it is, as my hon. Friend will appreciate, necessary to compute the gain involved. In other words, whereas with sub-paragraph (6, a) one is concerned not only with the computation of the gain but also to see whether there is, in fact, a charge at all—in other words, whether the transaction has taken place within six months—so far as subparagraph (b) is concerned one has reached the position where the transaction is not within the charge under the normal provisions of Case VII but may be within the charge under Clause 13, and, if it is, it is necessary in order to compute the gain to identify which shares are being dealt with. Otherwise, if we have successive parcels of shares bought at different dates, it would not be feasible without this rule to determine the price at which the parcel of shares was bought.
The effect of the Amendments would be that the shares disposed of would be first identified with the latest acquired shares within the six months period. My hon. Friend has described the proposal and I will not go over the ground again. He summed it up by saying that his proposal was a general one of "last in, first out". The difference between the rule proposed by the Amendment and that laid down in the Bill can best be illustrated by way of an example which, although I have it before me in writing, as it is a simple one I hope will be intelligible to the Committee.
Suppose that in month I a man buys 100 shares in a company with the hope of making a speculative profit. In month 3 he sees that the shares are going up and so he decides to buy another 100. In month 6 he decides to sell part of the holding and to take the profit, but he thinks it would be worthwhile taking a chance on the other part in the hope that there would be a further appreciation. In month 6 he sells 100, and finally he sells the other 100 in month 8.
The rules in the Bill identify the shares which are sold in month 6, that is, the first sale, with those which were acquired in month 1, thereby leaving the shares bought in the third month to be identified with those sold in the eighth month. Consequently on each occasion there would be a transaction

within Case VII which would either give rise to a charge on profits or gain or give rise to a loss which might be relieved against other Case VII profits.
The rule proposed by the Amendments would identify the 100 shares which were sold in month 6 with those bought in month 3, so that on the sale in the eighth month, the second sale, there would be within the preceding six months no acquisition with which the sale could be identified and, therefore, Case VII would not apply to that sale. There would in that event, following my hon. Friend's Amendments, be no tax chargeable, but, of course, it also follows that, in the event of a loss being made, there would be no loss relief allowable against Case VII profits or gains.
It seems to me that in considering this matter there are really two relevant considerations. The first is really whether the scheme in the Amendments would result in a worthwhile simplification. It is perfectly clear that the administration of the Case VII provisions will inevitably involve a careful examination of the acquisitions and disposals in the case of assets such as shares; in other words, the amounts, the purchase price in each case, and the dates. That being so, it does not seem to me, having explained the purposes behind the scheme in the Bill as it stands at present, that the scheme contemplated in the Amendments would result in any significant saving of time, or simplification; although I agree with my hon. Friend that, on the face of it, it appears to be a tidier scheme because it involves one rule instead of two. Consideration in any event will have to be given to the various dates of acquisitions and disposals in order to identify shares disposed of, and there is no disagreement with my hon. Friend on that point. That being so, it seems to follow that there would in actual practice be little difference in the work required under the two schemes.
So I come to the final and, perhaps, the most important point, and that is the consideration of whether or not the scheme in the Bill, as compared with my hon. Friend's scheme, is fair. We did, obviously, at a very early stage give considerable thought to the best and fairest scheme of identification. Since


these Amendments appeared on the Notice Paper we have looked at the matter again. We still think that the rules in the Bill do more truly reflect the substance of what the taxpayer is doing in these cases, and I would stress again that the scheme in the Bill—I think this is very important—does not necessarily work to the advantage of the Revenue because, as I pointed out, a taxpayer can make a loss in the acquisition and disposal within Case VII which would qualify for relief; but if the Amendments were accepted and the transactions fell outside Case VII there would be no loss relief.
I suppose, to be frank with the Committee, that as between the schemes we have been considering the choice in the end must be a matter of judgment, but I do want to assure my hon. Friend that we have given the matter every consideration. All we want to do here is to produce a scheme which will be fairest to all concerned and one which will not impose an intolerable burden on those who keep these records. I hope that in the light of the explanation which I have given to my hon. Friend about the operation of this part of the Schedule in relation to Clause 13 he will not feel it necessary to press his Amendments.

Mr. Mitchison: The Government's answer savours a little of heads I win and tails you lose, and I must say that I listened to it with a trifle of bewilderment and a trifle of suspicion. We do not want to help people who are trying by manipulation of their purchases and sales to get out of the proper incidence of the Case VII levy or tax, but, on the other hand, one does want to be fair about it.
I must say that the remark which appealed to me most was that in which the hon. Gentleman the Economic Secretary said, at the end of his speech, that this was very much a matter of judgment. My trouble is that Treasury judgments always seem to work the same way: the Treasury always wins. Therefore, I look at them with some suspicion, but I am bound to say that I do see the hon. Gentleman's point. Sub-paragraph (b) really applies, as I understand it, only to Clause 13, and Clause 13 cases are very obviously the kind of cases to which we do not want to give any

adventitious help, and I appreciate that point.
I feel rather puzzled about the matter from another point of view. The hon. Gentleman the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), who moved the Amendment, was perfectly right in saying that a great many taxpayers will not have had the advantage of hearing the Economic Secretary; they may not avail themselves of the advantage of reading his speech in HANSARD. They may be a little puzzled as to what this is all about, whether it is not another of those cases in which the Treasury cat has caught its own tail at last. It always derives nourishment from the process.
But there it is. I do not very much like it. I agree with the hon. Gentleman that it is probably a matter of judgment, and for my part I think that the balance of the argument was slightly in his favour, but I do say that something should be devised that would appear a little simpler to the ordinary person who has to send his returns so that he may know what is going to happen to him in the interval between sending them in and getting the assessment. People do like to be provident in advance, and this is, for many people, really singularly difficult to follow, though perhaps in this Committee we are a little bit accustomed to it.
I do hope that the Government will have a look at the mere matter of wording here to see if they can make it just a little simpler. I know it is not easy. Sometimes in these cases instances are given, and I dare say that when it comes to collecting and assessing the tax it may be possible to make the language of the Statute a little simpler in some such way as that. However, for myself I would not, on reflection, support the hon. Gentleman's Amendment, though I must say I have a very great deal of sympathy with the spirit which moved it.

Mr. Barber: May I make clear one point which may be relevant? I rather got the impression that the hon. and learned Gentleman the Member for Kettering (Mr. Mitchison) thought that the wording of sub-paragraph (b) was in some sense of an almost penal character in relation to Clause 13. I should like to assure the Committee that


in fact the sole purpose of it is simply to identify shares, because unless one did that one would not know what the original price of the shares was. I am sorry if I misled the hon. and learned Gentleman.

Mr. Mitchison: Not at all. I did not intend to give any such impression. I was merely considering the effect of the Clause and the reaction of the slightly harassed taxpayer to the somewhat—at first sight—illogical applications.

Sir H. d'Avigdor-Goldsmid: The hon. and learned Gentleman the Member for Kettering (Mr. Mitchison) has made my speech for me. Therefore, I think I should how and ask leave to withdraw the Amendment, but before doing so I should like to leave a thought with my hon. Friend, that if there were some reference in sub-paragraph (b) to Clause 13 I think it would make the task of the average taxpayer and the average back bencher a good deal easier. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

7.30 p.m.

Mr. Mitchison: I beg to move, in page 58, line 39, to leave out sub-paragraphs (2) and (3).

The Temporary Chairman: With this Amendment may be taken the one in page 59, line 18, leave out from "distribution" to end of line 20.

Mr. Mitchison: Thank you, Mr. Blackburn. The second Amendment is to similar effect.
The point that we desire to raise here—it may be that in a very complicated Schedule like this we have not tabled every consequential Amendment that we ought to have—is the question of what ought to be done about the timing of bonus shares. As we understand the Schedule at present—I repeat that it is complicated—it seems that if a bonus issue, to take perhaps the simplest case, is made by a company, the bonus shares are treated for the purpose of this tax as if they had been acquired when the shares to which the bonus rights attach were originally acquired.
The result may well be—I am trying to take fair instances—that a man who has had a holding in some company or another for three or four years gets a bonus issue and then sells it at a profit

and finds that he does not have to pay tax under Case VII because the bonus issue goes back to the date when the original shares were acquired. I trust I am putting the matter correctly. I hope that the Minister will correct me as soon as possible if I am not right, because one does not want to become more confused over what is a pretty confusing subject matter anyhow.
I take it that it will be said on behalf of the Government that what we are really dealing with is as follows. Someone buys originally what might be called a stake in a company, and that stake remains substantially, if not exactly, the same even if the capital of the company is increased. Then a bonus issue is made. What was originally perhaps 100 shares and has become 150 shares by reason of the bonus issue still represents a certain proportion of the total undertaking represented by the company. I imagine that that is the way in which it would be put by the Government.
Though that is perfectly sound, it seems to me that there is another point of view to be looked at. This is the question of the bonus recipient himself. He has had 100 shares in a company. He receives a letter about a provisional allotment or an allotment which, subject to payment or perhaps not subject to payment, will entitle him to some additional shares in the company. It is common practice nowadays that a document of that sort is usually, though not always, transferable. Therefore, the person is in a position not only to sell those shares immediately but to sell them for a period free of Stamp Duty. If he wants to reduce his stake in the company he now has an excellent opportunity of doing so, and in the ordinary course of Stock Exchange matters he will be able to get a little more for his new shares than for his old ones because the new ones will be transferable free of Stamp Duty. What he has acquired actually is a right which is on the face of it transferable. The immediate transfer is certainly not necessary but is clearly contemplated by the terms of the usual letter.
It seems to me very artificial to say as regards that transaction that the person has thereby not acquired an asset on the date that he received the letter but has acquired it at a certain time, perhaps a


couple of years, earlier when he bought the original shares. That is not actually the truth. The truth is that the asset, these disposable shares represented by the letter of allotment, was not in existence when he bought his original shares. It has been added to him afterwards.
If we go into the question of what exactly the shares represent, then we seem to be involving ourselves in matters which are really, I should have thought, beyond the scope of the Bill. The asset which the recipient of the letter is getting is, I repeat, in the case that I have taken, 50 new shares. There it is. Whether it is the case that they represent no more than a dividing up of his original stake in the company does not seem to me to be relevant to the point.
I should have said, therefore, that a very strong case had to be made out for treating these shares as having been acquired—to take the word out of the Bill—at a date when quite obviously they were not acquired. In fact, this statement seems to me to be one of those statutory fibs that it is occasionally necessary to put in somewhere, but hardly, I should have thought, in this case. Why not keep to the plain facts of the matter and treat the man as having acquired the new shares on the date he actually acquired them—on the date he got the letter?
I can see an argument the other way, and I have tried to put it, but it seems to me to be an argument directed to something quite outside the scope of the Bill. The Bill is concerned with the acquisition and disposal of chargeable assets, and this parcel of chargeable assets, or this chargeable asset, arrived with the post on Tuesday morning and the person opened the parcel and said "How splendid! The Ready Mixed Concrete Company has pupped already and I have made another bonus out of it."
This means, of course, that there must have been somebody who was deterred from "stagging" the issue by the Government's proposals. I am assuming that one or two people were frightened off and that the 6 million shares which were subscribed for represented not quite the whole of what might have been subscribed for if there had not been this tax. One must give the Government a

little credit sometimes—though rarely—for the fact that what they intend to happen does happen, and perhaps it happened here to a minor degree.
Therefore, taking the deterred "stag" of the Ready Mixed Concrete Company receiving his letter of allotment in a few weeks' time when the company, not discouraged by having sold its shares rather cheap last time, proceeds to make a bonus issue—they are doing all sorts of strange things in the City nowadays—and opening it on his breakfast table, surely none of us can deny that that is the moment when he acquires his chargeable asset? Consequently, I want to know why the Government propose that it shall be back-dated in this peculiar way.
I am sure that we shall be given some reason or another for it. The Treasury are wonderfully good at discovering reasons for inadequate statements, of which at first sight this appears to be one. I am sure that we shall be told something or other about it. I have been trying to guess what it will be. They have fertile brains and, I believe, a computer in the Treasury nowadays. [Interruption.] Perhaps they have not a computer; I do not know whether they have or not. At any rate, they have very fertile brains, and I feel that they must have found something or another as a good reason which I have been unable to imagine in the simplicity of my soul.
I therefore think that we might go back to the plain facts and have bonus shares treated as acquired on the date when they were acquired and not give them a sort of pre-natal existence as the Government desire and intend to give them, no doubt for purposes of their awn. There it is, with the plain man standing up unvarnished and simple at the Dispatch Box and saying to the Government, in awe and terror, "Please do not tell any unnecessary fibs."

Mr. Bruce Milan: I rise to support what my hon. and learned Friend the Member for Kettering (Mr. Mitchison) has competently and eloquently said, with particular reference not so much to bonus issues but to rights issues. There may be a theoretical case for saying that, with the issue of bonus shares, nothing


has changed except that denomination of the shares and the composition of the holding has been changed in some way. Ultimately, the thing is the same and no money has passed in the transaction. I still, I think, lean to the argument my hon. and learned Friend made, that bonus shares create a different situation, and that there are very strong arguments for treating the new holding as starting a different situation and working the date from the bonus issue.
If there is an argument against that interpretation of bonus issues—and I am willing to concede that there is—I am not willing to concede that there is any argument so far as rights issues are concerned. They are in a different category. Rights issues are not something which accrue automatically to a shareholder. There is no compulsion on a shareholder to take up a rights issue when money has to be passed.
As I said, the bonus issue comes without passing money. The rights issue is something he has to pay for. Having had to pay for the rights shares, he has, in every sense of the word, acquired those shares at that particular time. Therefore, disposal of the shares subsequently ought to be dated for purposes of this taxation from the time the rights issue was made.
There is no case for saying that the rights issue should go back to the original acquisition of the shares, except perhaps theoretically the case that a rights issue naturally arises out of the holding of the original shares. That is a pretty flimsy theoretical point to be placed against the absolutely practical and essential point that money passes and that the rights issue really ought to be taken as being at the particular time when the money is passed.

Mr. A. P. Costain: Surely the practical application is that when shares give X rights or X bonus the price of the original holding almost inevitably drops. How does the hon. Gentleman reconcile the two figures?

Mr. Millan: That would depend to some extent on the price at which the rights issue was made. Rights issues are normally made at something less than the current market value, and therefore one would expect, at least theoretically,

the price of each individual share in the total new holding to come down. It depends a good deal on the price at which the rights issue is made.
Even if that is true, the Schedule is already complicated enough to be able to accommodate this one additional complication. In principle, what the Government are proposing to do about rights issues is essentially wrong, and I should be interested to know why they have chosen this way of doing it.
Perhaps, having done it for bonus issues, they thought that they must do it for rights issues for the sake of neatness. I was not aware that this Schedule was neat in other directions, however. A little asymmetry in this would not have been amiss and would have been much more in touch with the realities of the situation.

7.45 p.m.

Mr. Barber: The hon. and learned Member for Kettering (Mr. Mitchison) is quite right in saying that there is something of a fiction involved in what is proposed here, but I assure him that the reason is simple. To proceed on the lines of his Amendment would be very unfair. I hope that when I have demonstrated how it would work in practice he will see the force of the argument in favour of the scheme in the Bill. As for his observations about bonus and rights issues, we looked at these various forms and came to the conclusion that, in this respect at any rate, they should be treated much the same.
The next Amendment, standing in the name of my right hon. and learned Friend the Chancellor of the Exchequer, is also concerned with paragraph 10 of the Schedule, and it might be for the convenience of the Committee, and it would certainly help me, to explain the issue between us on these Amendments if I were to say a general word about paragraph 10.

The Temporary Chairman: Is it the hon. Gentleman's intention that the Chancellor's Amendment should be discussed with these Amendments, or does he merely wish to make reference to it?

Mr. Barber: I was trying to help the Committee. Although it is not usual, I should like to refer to my right hon.


and learned Friend's Amendment—though not at length—and explain the normal workings of paragraph 10, while not going beyond these Amendments. This would also enable me to cut short my remarks on the next Amendment.
This paragraph is concerned with the reorganisation or reduction of a company's share capital, including bonus and rights issues in particular. The main scheme is that shares issued on the reorganisation or reduction of a company's share capital are treated as acquired at the same time as the original shares from which they flow. That is the fiction to which the hon. and learned Member referred. In other words, the taxpayer is treated as having a new holding acquired at the original date.
The cost of the new holding is the cost of the original shares, plus anything paid for the new shares. If there is then a chargeable disposal of part of the new holding, the total cost of that new holding is apportioned according to this new valuation. To ensure consistency of treatment, the taxpayer is treated as having paid the full subscription price for the new shares even if it has not yet been wholly paid, and there is a corresponding adjustment to the price he receives. That is to say, anything yet to be paid for the new shares is treated as added to the price, and the sale of the right to take up the new issue is treated in the same way as the sale of the new issue.
That is all I wanted to say in general about the workings of this part of the Schedule. I understand that the intention of the Amendments is simply that a person who gets a bonus or rights issue should, if he sells the issue, be chargeable by reference to the actual date of the issue and not to this fictional date, being the date of the acquisition of the original shares.
As I understand it, the proposal is that the chargeable gain should be the difference between what the issue cost him and what he gets for it, in other words, what would be, if there were not other considerations—which I shall mention—the common sense profit on the transaction. In the case of a bonus issue he would be charged on the full value and, in the case of rights, on the full value of the rights.
First, there is the question of the chargeable period, because of a change in date, and also the question of the amount of the charge. As far as the chargeable period is concerned, the true view is surely that if a person realises a new issue he is really realising part of his assets which flow from his original purchase of the shares in question. I give an example to make this clear.
If a man buys 100 shares in a company this year and receives a bonus issue of one for one in 1964, he really has the same interest in the company after the bonus issue has been made as before it, only it is now 200 shares instead of 100 shares. He is in no different case if he sells 100 of the 200 shortly after the bonus than if he sold 50 of the original 100 shortly before the bonus.
Similarly, in the case of a rights issue, there is generally, I should have thought, though it varies in degree, some bonus element combined with the taking of an additional stake in the company, because the rights flow from the original holding. So far as the amount of the charge is concerned, which is the other aspect of the hon. and learned Gentleman's Amendment, where there is a disposal within the time limit the Amendment would be clearly unfair. It we suppose, for example, to take a simple case, that a man bought 100 shares in a company at £1 each, and that while they are still standing at £1 he received a bonus of one for one so that each share becomes worth 10s., the 200 shares which he now has will have cost him £100 all told. If he sells 100 for £50 he makes no profit, but the Amendment would charge him on the full amount of £50. Even allowing for marginal differences which the hon. and learned Gentleman may have in mind, it would be clearly unfair to proceed in this way.
The hon. Member for Glasgow, Craigton (Mr. Millan) asked quite fairly whether we had given separate consideration to the position regarding rights issues. If instead of the bonus issue in the example which I have just given the person concerned was given the right to subscribe for one new share for 10s., bearing in mind that in that example the cost of the original share was £1, and if there had been no movement in the market valuation of the shares, he would finish up with 200 shares which had cost him


£150 in all—100 for which he had paid £1 each and 100 new shares which cost him £50. The effect of the rights issue at 10s. each would be to reduce the price of the shares after the issue from £1 to about 15s. each, so that if he now sells 50 of the new shares he will get £37 10s., or one-quarter of the total outlay bf £150 for the original shares and the subscription for the rights issue. He has thus sold one quarter of them.
In substance, however one looks at it, it is surely the case that this particular individual has made no profit, and certainly he has made no profit to the extent which would be charged if the Amendment in the name of the hon. and learned Gentleman were accepted, because the Amendment would charge him on the difference between the £37 10s. and the £25 which he subscribed for the 50 new shares. This seems to me to be unfair. I have explained the position, and it is, as the hon. and learned Gentleman said very fairly in his opening remarks, very complicated and extremely difficult to explain this sort of matter without giving examples. If I use examples which I have before me in writing, I do so because inevitably if one wishes to give examples off the cuff they come out much more complicated than if worked out beforehand.
I can only assume that the hon. and learned Gentleman, and I quite understand this, without the assistance which some of us in the Committee manage to obtain, has misunderstood the effect of the Bill as it stands, because I believe having considered the Amendment carefully, that it would certainly work out very unfairly to the taxpayer. I hope for these reasons that he will not press the Amendment.

Mr. Millan: Before my hon. and learned Friend the Member for Kettering (Mr. Mitchison) replies, may I take up the Economic Secretary on the question of the arithmetic? I am perfectly sure that what he said about the arithmetic and the effect of this Amendment if accepted must be wrong. All that we are intending to do with this Amendment, and the hon. Gentleman will perhaps correct me if I am wrong, is to change the date on which the transaction is to be taken to have started.
So far as the actual charge to the taxpayer is concerned, the effect of accepting the Amendment, arithmetically, would be nothing at all. Let me give one example. Suppose someone buys shares two months before bonus shares or a rights issue were granted and he then sold the bonus shares or rights issue right away, he would be chargeable under the Schedule as it is drawn. If we remove the time limit and instead of working from the date of the original holding, which is two months before the bonus issue, we work from the date of the bonus issue, how does it affect the arithmetic? It does not affect it at all.
The actual charge, if our Amendment is accepted, is bound to be the same charge as it would be if the Government proposals go through in the kind of case that I have mentioned, where, in fact, the disposal is chargeable because the original date was within a period of two or three months before the date of the bonus shares or rights issue. Therefore, I cannot believe, unless there is some additional reason which the Economic Secretary has not given, that our proposals would affect the arithmetic of this matter, as compared with the Schedule as it is at present. Therefore, I cannot believe that the Economic Secretary has given good reasons for rejecting our Amendment.
If he asks us to reject it on principle and says that we have got our principles wrong, we can agree to differ about that, but it is quite wrong for him to say that we must also reject it because we have got our arithmetic wrong and that it would impose injustice on the taxpayer. If it does, exactly the same fault must be attributable to the Government's present proposals in the kind of case which I have mentioned, where, in fact, disposal becomes chargeable under the existing Schedule. If there is a fault of that kind, will the hon. Gentleman look at it from the point of view of the Schedule as it is at present drawn, because, bad tax as we think this is, we would not wish to perpetrate the kind of arithmetical injustice on the taxpayer which the Economic Secretary has described to us. I cannot believe from what he has said that he can be right about it. I therefore think that it becomes a matter of principle, and that


the Government's principle, so far as rights issues are concerned, though I concede a doubt regarding bonus issues, is certainly wrong, and that the principle that would be involved in accepting our Amendment is essentially right.

Mr. Mitchison: The Economic Secretary was a little rash in suggesting that I had misunderstood what this was all about and, therefore, was going to concede his point of view. I had hoped that he was going to produce a new argument in favour of what was in the Bill, but all he did was to trot out the same argument, in almost exactly the same language, which I attributed to him at the beginning of my speech.
One can go on inventing cases about this sort of thing, and one can find cases in which this, that or the other will happen, but when we come down to the fundamentals of the business I am still inclined to think that the real question is whether there is any reason for this proposal, and I am bound to say that I do not see it. We are not considering a person's stake in a company. We are considering, for the purpose of this Amendment, the date at which a person acquires certain chargeable assets. That is the language of the Bill, and that is the question to which we should direct our attention.
8.0 p.m.
What the Government are doing is to say, "He acquired these chargeable assets, that is to say, the bonus or rights shares, when he acquired the original shares." He may have acquired a stake in the company equal in value to the shares he now has, if nothing else happened in the interval, but he certainly did not acquire shares which were not in existence at the time. It is introducing something quite outside everything else in the Bill if there is brought into existence for the purposes of taxation something which was not in existence at the time.
I look at it from another point of view. I agree that instances can be put the other way, but one is bound to look a little at what happens, and I take the instance of a bonus issue, while appreciating what my hon. Friend the Member for Glasgow, Craigton (Mr. Millan) said about rights issues, to which I shall return in a moment. Let us take a com-

pany which makes a bonus issue. Whenever that happens, as can be seen from the Stock Exchange prices given in the newspapers, in the next week there is a more than usually large number of transactions in those shares and in the new shares. The fact of the matter is that people take the opportunity to sell shares in the company when there is a bonus issue. There is a perfectly good reason for it, and I mentioned it earlier and I repeat it now—they can get a rather higher price than they would otherwise get for the new shares without having to pay Stamp Duty. That is what happens in effect.
What the Government are going to do is that in any case where the original shares were bought more than six months back, nobody is to pay tax at all on that disposal, at whatever price and in whatever circumstances. This is allowing a very large loophole indeed. It is letting off the great majority of people who get these bonus issues, because the great majority of them will be found to have held their shares for more than six months and therefore will get away with it, and I cannot think that this is right or fair.
I entirely agree with what my hon. Friend said about rights issues which make for a stronger case than bonus issues. I talked rather inaccurately about bonus issues with and without Payment, but I agree that my hon. Friend was right to make the technical distinction between the two.
There are all sorts of rights issues. I remember that a little time ago Vickers issued some shares by way of rights but, because the Government did something silly in the interval—I cannot remember exactly what it was—when the shares came out they were found to be worth much less than the price at which they were to be issued, that is to say, the rights were a minus quantity and the underwriters had to take the whole bunch of them and did so. I now remember that it was a change in the Bank Rate which caused it. One can get every variation from that down to the case where a consideration is purely nominal. There are all kinds of complications and all kinds of results can be produced from the sums.
If the Treasury wants a lesson in telling fibs, it had better tell a simple one


next time and not one as complicated as this. The facts here are so complicated that this is a case where—I say it with hushed voice—honesty is the best policy. I should like the Government to face up to the facts. If they think that the tax is in a bit of a mess, they might find a better way of getting it right than this. I could suggest several ways, but they would not be in order in this discussion. At the moment I am only considering this method of doing it. I think that it is the wrong one and contrary to the facts.
The balance of injustice will be caused by allowing people to sell off bonus

shares or rights issues at a considerable profit which will not be taxed because they bought the original shares more than six months before. With great respect to the Treasury experts, that is a thoroughly bad result and I propose, recognising as I do that there are difficulties on both sides of the matter, to stick to the truth and divide on the Amendment.

Question put, That the words proposed to be left out stand part of the Schedule:—

The Committee divided: Ayes 209, Noes 143.

Division No. 199.]
AYES
[8.5 p.m.


Agnew, Sir Peter
Emmet, Hon. Mrs. Evelyn
Maclean, SirFitzroy (Bute&amp;N.Ayrs.)


Altken, W. T.
Errington, Sir Eric
Macleod, Rt. Hn. Iain (Enfield, W.)


Allan, Robert (Paddington, S.)
Farr, John
Maddan, Martin


Arbuthnot, John
Finlay, Graeme
Maginnis, John E.


Ashton, Sir Hubert
Fraser, Ian (Plymouth, Sutton)
Manningham-Buller, Rt. Hn. Sir R.


Atkins HumPhrey
Galbraith, Hon. T. G. D.
Markham, Major Sir Frank


Balniel, Lord
Gardner, Edward
Marshall, Douglas


Barber, Anthony
Gilmour, Sir John
Mathew, Robert (Honiton)


Barlow, Sir John
Glyn, Dr. Alan (ClaPham)
Matthews, Gordon (Meriden)


Barter, John
Goodhew, Walter
Mawby, Ray


Batsford, Brian
Gower, Raymond
Maxwell-Hyslop, R. J.


Baxter, Sir Beverley (Southgate)
Grant, Rt. Hon. William
Maydon, Lt.-Cmdr. S. L. C.


Beamish, Col. Sir Tufton
Grant-Ferris, Wg. Cdr. R.
Miscampbell, Norman


Bennett, F. M. (Torquay)
Green, Alan
More, Jasper (Ludlow)


Berkeley, Humphry
Gresham Cooke, R.
Morgan, William


Biffen, John
Grimond, Rt. Hon. J.
Morrison, John


Bingham, R. M.
Grosvenor, Lt.-Col. R. G.
Nabarro, Gerald


Bishop, F. P.
Gurden, Harold
Neave, Airey


Black, Sir Cyril
Hall, John (Wycombe)
Nicholson, Sir Godfrey


Bourne-Arton, A.
Harris, Frederic (Croydon, N.W.)
Noble, Michael


Box, Donald
Harris, Reader (Heston)
Oakshott, Sir Hendrie


Boyle, Sir Edward
Harrison, Brian (Maldon)
Orr-Ewing, C. Ian


Braine, Bernard
Harrison, Col. Sir Harwood (Eye)
Osborne, Sir Cyril (Louth)


Brooke, Rt. Hon. Henry
Harvie Anderson, Miss
Page, Graham (Crosby)


Brooman-White, R.
Hay, John
Page, John (Harrow, west)


Brown, Alan (Tottenham)
Heald, Rt. Hon. Sir Lionel
Pannell, Norman (Kirkdale)


Browne, Percy (Torrington)
Henderson, John (Cathcart)
Partridge, E.


Bryan, Paul
Hill, Mrs. Eveline (Wythenshawe)
Pearson, Frank (Clitheroe)


Buck, Antony
Hill, J. E. B. (S. Norfolk)
Peel, John


Bullard, Denys
Hirst, Geoffrey
Percival, Ian


Bullus, Wing Commander Eric
Hobson, Sir John
Pickthorn, Sir Kenneth


Burden, F. A.
Hocking, Philip N.
Pilkington, Sir Richard


Butcher, Sir Herbert
Holland, Philip
Pitt, Miss Edith


Carr, Robert (Mitcham)
Hollingworth, John
Pott, Percivall


Cary, Sir Robert
Hooson, H. E.
Prior-Palmer, Brig, sir Otho


Chichester-Clark, R.
Hughes-Young, Michael
Profumo, Rt. Hon. John


[...], Henry (Antrim, N.)
Hulbert, Sir Norman
Proudfoot, Wilfred


Clarke, Brig. Terence (Portsmth, W.)
Hutchison, Michael Clark
Rawlinson, Peter


Cleaver, Leonard
Iremonger, T. L.
Redmayne, Rt. Hon. Martin


Collard, Richard
Irvine, Bryant Godman (Rye)
Rees-Davies, W. R.


Cooper, A. E.
James, David
Renton, David


Cooper-Key, Sir Neill
Jenkins, Robert (Dulwich)
Ridley, Hon. Nicholas


Corfield, F. V.
Johnson, Dr. Donald (Carlisle)
Robinson, Rt Hn. SirRoland (B'pool, S.)


Costain, A. P.
Kaberry Sir Donald



Coulson, Michael
Kerans, Cdr. J. S.
Roots William


Craddock, Sir Beresford
Kershaw, Anthony
Ropner, Col. Sir Leonard


Cunningham, Knox
Kimball, Marcus
Royle, Anthony (Richmond, Surrey)


Currie, G. B. H.
Kirk, Peter
Russell, Ronald


Dalkeith, Earl of
Langford-Holt, Sir John
Scott-Hopkins, James


d'Avigdor.Goldsmid, Sir Henry
Leather, E. H. C.
Sharples, Richard


Deedes, W. F.
Legge-Bourke, Sir Harry
Shepherd, William


de Ferranti, Basil
Linstead, Sir Hugh
Skeet, T. H. H.


Donaldson, Cmdr. C. E. M.
Lloyd, Rt. Hon. Selwyn (Wirral)
Smith, Dudley (Br'ntf'd &amp; Chiswlck)


Drayson, G. B.
Longden, Gilbert
Smithers, Peter


du Cann, Edward
Loveys, Walter H.
Spearman, Sir Alexander


Duncan, Sir James
Lubbock, Eric
Speir, Rupert


Eden, John
Lucas-Tooth, Sir Hugh
Stevens, Geoffrey


Elliot, Capt. Walter (Carshalton)
MacArthur, Ian
Steward, Harold (Stockport, S.)


Elliott, R. W. (Nwcastle-upon-Tyne, N.)
McLaren, Martin
Stoddart-Scott, Col. Sir Malcolm




Studholme, Sir Henry
Thorpe, Jeremy
Ward, Dame Irene


Talbot, John E.
Tiley, Arthur (Bradford, W.)
Wells, John (Maidstone)


Taylor, Frank (M'ch'st'r, Moss Side)
Turner, Colin
Williams, Paul (Sunderland, S.)


Taylor, W. J. (Bradford, N.)
van Straubenzee, W. R.
Wills, Sir Gerald (Bridgwater)


Teeling, Sir William
Vane, W. M. F.
Wilson, Geoffrey (Truro)


Temple, John M.
Vaughan-Morgan, Rt. Hon. Sir John
Wise, A. R.


Thatcher, Mrs. Margaret
vickers, Miss Joan
Wolrige-Gordon, Patrick


Thomas, Leslie (Canterbury)
Wade, Donald
Wood, Rt. Hon. Richard


Thomas, Peter (Conway)
Wakefield, Sir Wavell
Worsley, Marcus


Thompson, Kenneth (Walton)
Walder, David



Thompson, Richard (Croydon, S.)
Walker, Peter
TELLERS FOR THE AYES:


Thornton-Kemsley, Sir Colin
Walker-Smith, Rt. Hon. Sir Derek
Mr. Rees and




Mr. Michael Hamilton.




NOES


Ainsley, William
Holman, Percy
Probert, Arthur


Allen, Scholefield (Crewe)
Houghton, Douglas
Pursey, Cmdr. Harry


Bacon, Miss Alice
Hoy, James H.
Randall, Harry


Baxter, William (Stirlingshire, W.)
Hughes, Cledwyn (Anglesey)
Redhead, E. C.


Beaney, Alan
Hughes, Emrys (S. Ayrshire)
Rhodes, H.


Bence, Cyril
Hunter, A. E.
Roberts, Goronwy (Caernarvon)


Bennett, J. (Glasgow, Bridgeton)
Hynd, H. (Accrington)
Robertson, John (Paisley)


Benson, Sir George
Hynd, John (Attercliffe)
Robinson, Kenneth (St. Pancras, N.)


Blyton, William
Irving, Sydney (Dartford)
Rogers, G. H. R. (Kensington, N.)


Boardman, H.
Janner, Sir Barnett
Ross, William


Bottomley, Rt. Hon. A. G.
Jay, Rt. Hon. Douglas
Royle, Charles (Salford, West)


Bowden, Rt. Hn. H. W. (Lelcs, S.W.)
Jenkins, Roy (Stechford)
Short, Edward


Boyden, James
Jones, J. Idwal (Wrexham)
Silverman, Julius (Aston)


Braddock, Mrs. E. M.
Jones, T. W. (Merioneth)
Silverman, Sydney (Nelson)


Brockway, A. Fenner
Kelley, Richard
Skeffington, Arthur


Broughton, Dr. A, D. D.
Kenyon, Clifford
Slater, Joseph (Sedgefield)


Callaghan, James
King, Dr. Horace
Smith, Ellis (Stoke, S.)


Castle, Mrs. Barbara
Lawson, George
Soskice, Rt. Hon. Sir Frank


Chapman, Donald
Lee, Miss Jennie (Cannock)
Spriggs, Leslie


Collick, Percy
Lewis, Arthur (West Ham, N.)
Steele, Thomas


Craddock, George (Bradford, S.)
Loughlin, Charles
Stones, William


Crossman, R. H. S.
MacColl, James
Strachey, Rt. Hon. John


Cullen, Mrs. Alice
MacDermot, Niall
Stross, Dr. Barnett (Stoke-on-Trent,C.)


Darling, George
Mcinnes, James
Swain, Thomas


Davies, Harold (Leek)
McKay, John (Wallsend)
Swingler, Stephen


Delargy, Hugh
McLeavy, Frank
Taverne, D.


Diamond, John
Mallalieu. J. P. W. (Huddersfield, E.)
Thomas, George (Cardiff, W.)


Dodds, Norman
Mapp, Charles
Thompson, Dr. Alan (Dunfermline)


Ede, Rt. Hon. C.
Mason, Roy
Thomson, G. M. (Dundee, E.)


Edwards, Rt. Hon. Ness (Caerphilly)
Mendelson, J. J.
Thornton, Ernest


Edwards, Robert (Bilston)
Millan, Bruce
Wainwright, Edwin


Evans, Albert
Milne, Edward
Warbey, William


Finch, Harold
Mitchison, G. R.
Watkins, Tudor


Foot, Dingle (Ipswich)
Monslow, Walter
Wells, Percy (Faversham)


Foot, Michael (Ebbw Vale)
Morris, John
White, Mrs. Eirene


Forman, J. C.
Moyle, Arthur
Wigg, George


Fraser, Thomas (Hamilton)
Mulley, Frederick
Wilkins, W. A.


Galpern, Sir Myer
Neal, Harold
Willey, Frederick


George, LadyMeganLloyd(Crmrthn)
Noel-Baker, Francis (Swindon)
Williams, LI. (Abertillery)


Ginsburg, David
Noel-Baker,Rt, Hn. Phllip (Derby, S.)
Williams, W. R. (Openshaw)


Gourlay, Harry
Oliver, G. H.
Willis, E. G. (Edinburgh, E.)


Hale, Leslie (Oldham, W.)
Oswald, Thomas
Winterbottom, R. E.


Hall, Rt. Hn. Glenvil (Colne Valley)
Owen, Will
Woof, Robert


Hamilton, William (West Fife)
Panned, Charles (Leeds, W.)
Yates, Victor (Ladywood)


Hart, Mrs. Judith
Parkin, B. T.
Zilliacus, K.


Hayman, F. H.
Paton, John



Healey, Denis
Pavitt, Laurence
TELLERS FOR THE NOES:


Henderson, Rt. Hn. Arthur (RwlyRegis)
Pearson, Arthur (Pontypridd)
Mr. Ifor Davies and Mr. Grey.


Herbison, Miss Margaret
Pentland, Norman

8.15 p.m.

Mr. Barber: I beg to move, in page 59, line 32, to leave out from "Where" to the end of line 36 and to insert
on a reorganization of a company's share capital a person receives or becomes entitled to receive in respect of any shares a provisional allotment of shares in or debentures of the company, then unless he neither accepts the allotment nor disposes of his rights before or after the making of the allotment, those rights shall be treated in relation to him and in relation to any person acquiring them directly or indirectly from him as if they were the shares or debentures to which they relate".

The purpose of the Amendment is to correct two anomalies which have come to light. You will remember, Mr. Blackburn, that in relation to the previous Amendment I went into the operation of paragraph 10 in some detail in the hope that it would save time in dealing with this Amendment.
The alterations to the Bill which are effected by the Amendment relate to two classes of person. First, to a person who has been provisionally allotted a new issue of shares by way of a rights issue


or a bonus issue and sells his old shares before taking up his new allotment. Secondly, to a person who buys in the market the right to take up shares, exercises that right, and then sells the shares. I should like to consider briefly the effect on each of these types of person in turn because it is easier to deal with them independently.
First, ate case of the shareholder who has received a provisional allotment to a bonus issue or a rights issue. A sale of rights to take up the new issue is treated in the same way as a sale of the new shares, and the reason for this is that in substance it makes no difference whether a man takes up and then sells his shares, or simply sells the rights to take up the shares. In either case the market price of the old shares would have been reduced because of the bonus issue or the value of the rights attaching to the rights issue, and some part of that value will have been transferred to the new shares, or, if not, taken up, to the rights to take them up.
But a man who finds himself with an enlarged holding as a result of a bonus issue or a rights issue and wishes to realise part of it can sell some of the old shares—the original shares that he had or just as well sell the new shares or the rights. It really makes no difference to him. If he sells the old shares after the rights have been exercised and the new shares are taken up, the rules in the paragraph that we have been considering, about apportioning the total cost of the holding between the old and the new shares, apply. But as the paragraph is drafted they do not apply if the person sells the old shares before taking up the new ones. Obviously the same rules must apply in each case, and the Amendment achieves this in the

case of a shareholder who has received a provisional allotment to a bonus issue or a rights issue.

The second category that I mentioned was the treatment of a person who exercises a right to take up new shares. The intention was that the six months' period in relation to a sale of shares acquired through the exercise of rights bought in the market should run from the date of the purchase of the rights. Special provision, which is lacking in the Bill as drafted, is needed to secure this result, because, in relation to a sale of shares taken up under the rights the exercise of the rights would be the acquisition, from which the six months' period would run.

The Amendment secures that in each case a six months' period in respect of the sale of shares will run from the date of the acquisition of the rights. This was the original intention, and I think that this is clear from the wording of the White Paper dealing with this matter, and again this is corrected by this Amendment.

Mr. Mitchison: With much of what the hon. Gentleman has said I think we could all agree, but this raises the same point as that we were discussing on the last Amendment. It raises it in a new context, but it still requires the rights to be treated as if they were the shares or debentures to which they relate. We are opposed to that. We lost the last Division. We hope to win the next and to eject the Government.

Question put, That the words proposed to be left out stand part of the Schedule:—

The Committee divided: Ayes 142, Noes 207.

Division No. 200.]
AYES
[8.20 p.m.


Ainsley, William
Castle, Mrs. Barbara
Foot, Dingle (Ipswich)


Allen, Scholefield (Crewe)
Chapman, Donald
Foot, Michael, Ebbw Vale)


Bacon, Miss Alice
Collick, Percy
Forman, J. C.


Baxter, William (Stirlingshire, W.)
Craddock, George (Bradford, 8.)
Fraser, Thomas (Hamilton)


Beaney, Alan
Crossman, R. H. S.
Galpern, Sir Myer


Bence, Cyril
Cullen, Mrs. Alice
George, LadyMeganLloyd (Crmrthn)


Bennett, J. (Glasgow, Bridgeton)
Darling, George
Ginsburgh, David


Benson, Sir George
Davies, Harold (Leek)
Gourlay, Harry


Blyton, William
Delargy, Hugh
Greenwood, Anthony


Boardman, H.
Diamond, John
Hale, Leslie (Oldham, W.)


Bottomley, Rt. Hon. A. G.
Dodds, Norman
Hall, Rt. Hn. Glenvil (Colne Valley)


Bowden, Rt. Hn. H.W. (Leics. S. W.)
Ede, Rt. Hon. C.
Hamilton, William (West Fife)


Boyden, James
Edwards, Rt. Hon. Ness (Caerphilly)
Hart, Mrs. Judith


Brockway, A. Fenner
Edwards, Robert (Bilston)
Hayman, F. H.


Broughton, Dr. A. D. D.
Evans, Albert
Healey, Denis


Callaghan, James
Finch, Harold
Henderson, Rt. Hn. Arthur (Rwly Regis)




Herbison, Miss Margaret
Milne, Edward
Skeffington, Arthur


Holman, Percy
Mitchison, G. R.
Slater, Joseph (Sedgefield)


Houghton, Douglas
Monslow, Walter
Smith, Ellis (Stoke, S.)


Hoy, James H.
Morris, John
Soskice, Rt. Hon. Sir Frank


Hughes, Cledwyn (Anglesey)
Moyle, Arthur
Spriggs, Leslie


Hughes, Emrys (S. Ayrshire)
Mulley, Frederick
Steele, Thomas


Hunter, A. E.
Neal, Harold
Stones, William


Hynd, H. (Accrington)
Noel-Baker, Francis (Swindon)
Strachey, Rt. Hon. John


Hynd, John (Attercliffe)
Noel-Baker, Rt. Hn. Phillp (Derby, S.)
Stross, Dr. Barnett (Stoke-on-Trent.C.)


Irving, Sydney (Dartford)
Oliver, G. H.
Swain, Thomas


Janner, Sir Barnett
Oswald, Thomas
Swingler, Stephen


Jay, Rt. Hon. Douglas
Owen, Will
Taverne, D.


Jenkins, Roy (Stechford)
Pannell, Charles (Leeds, W.)
Thomas, George (Cardiff, W.)


Jones, J. Idwal (Wrexham)
Parkin, B. T.
Thompson, Dr. Alan (Dunfermline)


Jones, T. W. (Merioneth)
Paton, John
Thomson, G. M. (Dundee, E.)


Kelley, Richard
Pavitt, Laurence
Thornton, Ernest


Kenyon, Clifford
Pearson, Arthur (Pontypridd)
Wainwright, Edwin


King, Dr. Horace
Pentland, Norman
Warbey, William


Lawson, George
Probert, Arthur
Watkins, Tudor


Lee, Miss Jennie (Cannock)
Pursey, Cmdr. Harry
Wells, Percy (Faversham)


Lewis, Arthur (West Ham, N.)
Randall, Harry
White, Mrs. Eirene


Loughlin, Charles
Redhead, E. C.
Wilkins, W. A.


MacColl, James
Rhodes, H.
Willey, Frederick


MacDermot, Niall
Roberts, Goronwy (Caernarvon)
Williams, LI. (Abertillery)


McInnes, James
Robertson, John (Paisley)
Williams, W. R. (Openshaw)


McKay, John (Wallsend)
Robinson, Kenneth (St. Pancras, N.)
Willis, E. G. (Edinburgh, E.)


McLeavy, Frank
Rogers, G. H. R. (Kensington, N.)
Winterbottom, R. E.


Mallalieu, J. P. W. (Huddersfleld, E.)
Ross, William
Woof, Robert


Mapp, Charles
Royle, Charles (Salford, West)
Yates, Victor (Ladywood)


Mason, Roy
Short, Edward
Zilliacus, K.


Mendelson, J. J.
Silverman, Julius (Aston)



Millan, Bruce
Silverman, Sydney (Nelson)
TELLERS FOR THE AYES:




Mr. Ifor Davies and Mr. Grey.




NOES


Agnew, Sir Peter
de Ferranti, Basil
Irvine, Bryant Godman (Rye)


Aitken, W. T.
Donaldson, Cmdr. C. E. M.
James, David


Allan, Robert (Paddington, S.)
Drayson, G. B.
Jenkins, Robert (Dulwich)


Arbuthnot, John
du Cann, Edward
Johnson, Dr. Donald (Carlisle)


Ashton, Sir Hubert
Duncan, Sir James
Kaberry, Sir Donald


Atkins, Humphrey
Eden, John
Kerans, Cdr. J. S.


Balniel, Lord
Elliot, Capt. Walter (Carshalton)
Kershaw, Anthony


Barber, Anthony
Elliott, R. W. (N'castle-upon-Tyne,N.)
Kimball, Marcus


Barlow, Sir John
Emmet, Hon. Mrs. Evelyn
Kirk, Peter


Barter, John
Errington, Sir Eric
Langford-Holt, Sir John


Batsford, Brian
Farr, John
Leather, E. H. C.


Baxter, Sir Beverley (Southgate)
Finlay, Graeme
Legge-Bourke, Sir Harry


Beamish, Col. Sir Tufton
Fraser, Ian (Plymouth, Sutton)
Linstead, Sir Hugh


Bennett, F. M. (Torquay)
Galbraith, Hon. T. G. D.
Lloyd, Rt. Hon. Selwyn (Wirral)


Berkeley, HumphryGardner, Edward
Longden, Gilbert


Biffen, David
Gilmour, Sir John
Loveys, Walter H.


Bingham, R. M.
Glyn, Dr. Alan (Clapham)
Lubbock, Eric


Bishop, F. P.
Goodhew, Victor
Lucas-Tooth, Sir Hugh


Black, Sir Cyril
Gower, Raymond
MacArthur, Ian


Bossom, Clive
Grant, Rt. Hon. William
McLaren, Martin


Bourne-Arton, A.
Grant-Ferris, Wg. Cdr. R.
Maclean, SirFltzroy(Bute&amp;N.Ayrs.)


Box, Donald
Green, Alan
Macleod, Rt. Hn. Iain (Enfield, W.)


Boyle, Sir Edward
Gresham Cooke, R.
Maddan, Martin


Braine, Bernard
Grimond, Rt. Hon. J.
Maginnis, John E.


Brooke, Rt. Hon. Henry
Grosvenor, Lt.-Col. R. G.
Manningham-Buller, Rt. Hn. Sir R.


Brooman-White, R.
Gurden, Harold
Markham, Major Sir Frank


Brown, Alan (Tottenham)
Hall, John (Wycombe)
Marshall, Douglas


Bryan, Paul
Hamilton, Michael (Wellingborough)
Mathew, Robert (Honiton)


Buck, Antony
Harris, Frederic (Croydon, N.W.)
Matthews, Gordon (Meriden)


Bullard, Denys
Harris, Reader (Heston)
Mawby, Ray


Bullus, Wing Commander Eric
Harrison, Brian (Maldon)
Maxwell-Hyslop, R. J.


Burden, F. A.
Harrison, Col. Sir Harwood (Eye)
Maydon, Lt.-Cmdr. S. L. C.


Butcher, Sir Herbert
Harvie Anderson, Miss
Miscampbell, Norman


Carr, Robert (Mitcham)
Hay, John
More, Jasper (Ludlow)


Cary, Sir Robert
Heald, Rt. Hon. Sir Lionel
Morgan, William


Clark, Henry (Antrim, N.)
Henderson, John (Cathcart)
Morrison, John


Clarke, Brig. Terence (Portsmth, W.)
Hill, Mrs. Eveline (Wythenshawe)
Nabarro, Gerald


Cleaver. Leonard
Hill, J. E. B. (S. Norfolk)
Nicholson, Sir Godfrey


Collard, Richard
Hirst, Geoffrey
Noble, Michael


Cooper, A. E.
Hobson, Sir John
Oakshott, Sir Hendrie


Cooper-Key, Sir Neill
Hocking, Philip N.
Orr-Ewing, C. Ian


Corfield, F. V.
Holland, Philip
Osborne, Sir Cyril (Louth)


Costain, A. P.
Hollingworth, John
Page, Graham (Crosby)


Coulson, Michael
Hooson, H. E.
Page, John (Harrow, West)


Craddock, Sir Beresford
Hornsby-Smith, Rt. Hon. Dame P.
Pannell, Norman (Kirkdale)


Currie, G. B. H.
Hughes-Young, Michael
Partridge, E.


Dalkeith, Earl of
Hulbert, Sir Norman
Pearson, Frank (Clitheroe)


d'Avigdor-Goldsmid, Sir Henry
Hutchison, Michael Clark
Peel, John


Deedes, W. F.
Iremonger, T. L.
Percival, Ian




Pickthorn, Sir Kenneth
Smith, Dudley (Br'ntf'd &amp; Chiswick)
Vane, W. M. F.


Pilkington, Sir Richard
Smithers, Peter
Vaughan-Morgan, Rt. Hon. Sir John


Pitt, Miss Edith
Spearman, Sir Alexander
Vickers, Miss Joan


Pott, Percivall
Speir, Rupert
Wade, Donald


Prior-Palmer, Brig. Sir Otho
Stevens, Geoffrey
Wakefleld, Sir Wavell


Profumo, Rt. Hon. John
Steward, Harold (Stockport, S.)
Walder, David


Proudfoot, Wilfred
Stoddart-Scott, Col. Sir Malcolm
Walker, Peter


Rawlinson, Peter
Studholme, Sir Henry
Walker-Smith, Rt. Hon. Sir Derek


Redmayne, Rt. Hon. Martin
Talbot, John E.
Ward, Dame Irene


Rees-Davies, w. R.
Taylor, Frank (M'ch'st'r, Moss Side)
Wells, John (Maidstone)


Renton, David
Taylor, W. J. (Bradford, N.)
Williams, Paul (Sunderland, S.)


Ridley, Hon. Nicholas
Teeling, Sir William
Wills, Sir Gerald (Bridgwater)


Robinson, Rt. Hn. Sir R. (B'pool, S.)
Temple, John M.
Wilson, Geoffrey (Truro)


Roots, William
Thatcher, Mrs. Margaret
Wise, A. R.


Ropner, Col. Sir Leonard
Thomas, Leslie (Canterbury)
Wolrige-Gordon, Patrick


Royle, Anthony (Richmond, Surrey)
Thompson, Kenneth (Walton)
Wood, Rt. Hon. Richard


Russell, Ronald
Thompson, Richard (Croydon, S.)
Worsley, Marcus


Scott-Hopkins, James
Thornton-Kemsley, Sir Colin



Sharples, Richard
Tiley, Arthur (Bradford, W.)
TELLERS FOR THE NOES:


Shepherd, William
Turner, Colin
Mr. Chichester-Clark and Mr. Rees.


Skeet, T. H. H.
van Straubenzee, W. R.

Proposed words there inserted.

8.30 p.m.

Mr. Graham Page: I beg to move, in page 63, line 21, to leave out from "expenditure" to the end of line 24 and to insert:
in respect of which he has received an allowance under section one hundred and one of the Income Tax Act, 1952 .
The Amendment comes in that part of the Schedule which is headed
Additional provisions as to computation of gains".
The Amendment is to sub-paragraph (3), which deals with the deduction of expenses from a gain which has accrued from the acquisition and disposal of land. As the paragraph stands, it provides that one can deduct from the gain made on the disposal of land the expenditure incurred, but one shall make no deduction for expenditure which could be taken into account under Section 101 of the Income Tax Act, 1952. That Section deals with claims for relief from Schedule A by reason of repairs and maintenance.
The offending word in the paragraph is the word "could". I have endeavoured to make the position more definite by providing that a person who acquired and disposed of land should not deduct any expenditure
in respect of which he has received an allowance under section one hundred and one of the Income Tax Act, 1952.
I can best explain the position by taking an example. Let us suppose that a taxpayer buys a house—not for his own occupation—for £3,000 and that the net annual value for Schedule A purposes is £50. Let us also suppose that he then spends £1,000 on repairs, after which he

sells the house for £4,200. He has bought it for £3,000, has spent £1,000 on repairs, and has sold it, at a slight gain, for £4,200.
The whole of that £1,000 spent on repairs could, under some circumstances, be taken into account against his Schedule A assessment, but only the amount of his Schedule A assessment will be set against those repairs so that, the net annual value being £50, he will be able to use up only £50 of that £1,000 spent on repairs in each of the following five years. As I read the Clause, that means that there is a possibility of his having made an actual gain in cash of only £200, plus what he has received by relief against Schedule A, whereas he will be charged for a gain of £1,200. He will be unable to take into account his expenditure on repairs because that can be taken into account against his Schedule A assessment, and to that extent it is excluded as a deduction under the terms of paragraph (3).
If my hon. Friend the Economic Secretary feels that I have a good point, it may be that my Amendment should also exclude the possibility of such a person's having received it as an allowance under Schedule A and then claiming it again. The Amendment might have to go a little further. However, I have raised the point, and I ask my hon. Friend whether my reading of the Clause is right, and, therefore, whether it needs some amendment.

Mr. Talbot: I support what my hon. Friend the Member for Crosby (Mr. Graham Page) has said. The purpose of his Amendment is to permit the continuance of the type of transaction which, although it produces profit for the


originator, is, nevertheless, of social value. I mean the acquisition of a house which has decayed and which rejuires a considerable amount of repair. The original buyer of the house has spent money on repairs and has then resold it. It is perfectly possible, as my hon. Friend explained, that such a transaction, if carried out under the Bill as it now is, will produce a loss because the repair is not a repair of the annual type with which we are familiar in dealing with Schedule A, and the expenditure incurred is designed to fit the property for the purpose of sale. In other words, it is virtually the creation of a fresh asset.
In these circumstances, I ask the Economic Secretary to look again at this Clause with a view to seeing that the revenue does not have to suffer two types of deduction, and I suggest that the taxpayer should have the option whether he will treat this type of expenditure as a capital expenditure in relation to the capital gain or have it dealt with as part of his general liability in relation to Schedule A.

Mr. Barber: I am grateful to my hon. Friend the Member for Crosby (Mr. Graham Page) and my hon. Friend the Member for Brierley Hill (Mr. Talbot), who are both concerned in practice with this sort of matter, for raising this point.
The reason for the somewhat surprising words, on the face of it, which appear in paragraph 15 (3) of this Schedule was because of the way in which Schedule A relief in respect of expenditure incurred on maintenance and so on can be passed on from one owner to another owner of property. I need not go into the details except to tell the Committee that the reason for the wards was, broadly speaking, to prevent a person who had carried out a Case VII transaction and incurred expenditure there also getting taxation relief from the expenditure by way of deduction in computing his Case VII gains as well as getting maintenance relief.
The fact that the purchaser can get tax relief for the vendor's maintenance expenditure will, of course, be reflected in the price of the property, so the vendor gets that much more for it. Even so, I can see the force of my hon.

Friend's argument that the rule, as it now appears in the Bill, may be too harsh. So far as the vendor is concerned, his profit will have been reduced by the amount of expenditure which he thought it necessary to lay out in putting the property into repair. So by denying him relief for this expenditure the Bill charges him on more than he in fact makes.
To remedy the matter simply by accepting the Amendment would, I think, result in an undue amount of generosity because it could have the result that taxation relief was given twice over for the same expenditure, once against the Case VII liability of the person who bought, repaired and then resold the house, and, secondly, by way of maintenance relief to the person who bought the house. Consequently, while I cannot advise the Committee to accept the Amendment, my hon. Friend is certainly on to a point which needs further consideration. I suggest to him that perhaps my right hon. and learned Friend should look at this point between now and the Report stage to see whether we can so amend the Bill as to deal in a satisfactory way with this problem. Having said that, I hope that my hon. Friend will seek leave to withdraw the Amendment.

Mr. Mitchison: Since the advice of the Government to the Committee is not to press this Amendment but to wait and see what the Government will bring forth, we are willing to wait and see. I agree with the hon. Gentleman that this Amendment, as drafted, would open the door to getting Case VII relief first and then since I think the period is up to six years for maintenance claims—for getting it under a maintenance claim later. I am sure, however, that that is a drafting point. But we on this side of the Committee must not be taken to agree with what the Government are saying. We would rather read what has been said in the debate and, above all, see what the Government finally bring forward, if anything.

Mr. Graham Page: It was not my intention that the taxpayer should obtain relief twice over. My hon. Friend the Member for Brierley Hill (Mr. Talbot) expressed it very well when he said that the taxpayer should have the option. I am grateful to my hon. Friend the


Economic Secretary for saying that he will look at this matter and, with that assurance, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Question proposed, That the Schedule, as amended, be the Ninth Schedule to the Bill.

Sir H. d'Avigdor-Goldsmid: In this debate we say goodbye for the time being to Case VII. It is not a very fond farewell, and not a very long one. We have dealt throughout Case VII with a tax not yet operative, and of which no one yet has any experience. Therefore, to a great extent this has been "played by ear". It is only right that we should congratulate the right hon. and hon. Members on the Government Front Bench on the skilful way in which the Clauses have been drawn and on the very small number of Amendments which they have attracted. But my right hon. and hon. Friends had better remember that these are still very early days. I cannot help feeling that by this time next year there will be matters arising on Case VII of special urgency, and about which we shall have further arguments to advance. I do not wish to say more about that now, but to draw the attention of my hon. Friend to one small matter which is the subject of a starred Amendment which you, Sir William, have not called.
The point has arisen because of the necessity to play this by ear, and, these being complicated matters, such points do not rise immediately to the eye but take a good deal of delving to produce. In paragraph 12 of this Schedule, dealing with company amalgamations, it is laid down on broad lines that where the company issues shares or debentures in exchange for the shares or debentures of another company, the newly issued shares arc treated as if they had been acquired by their receivers at the same time as they originally bought the shares in the old company.
A point arises under Section 206 of the Companies Act, 1929, where it may be desirable for one reason or another—for the capitalisation of shares—for one company not to issue shares to the other company taking over, but to cancel the shares in the old company and then, after cancellation, to undertake to issue further shares in the new company. This

is, no doubt, a subject which will be familiar to the hon. and learned Gentleman but I am afraid that it is unfamiliar to me. The point, on which I touch in the Amendment which you, Sir William, did not call, is that the word "exchange" is not an apt word to appear in such an Amendment as would cover this particular eventuality.
For that reason, I tabled a group of Amendments suggesting the use of the word "substitution" for the word "exchange", which I was legally advised would cover this point. I agree that it is of seemingly minor interest, but I have knowledge of one transaction in which it has featured, and company rearangements under Section 206 of the Companies Act, 1948, are not so uncommon. There seems to be no conceivable reason why we should take action in the House of Commons to discourage them per se. For that reason, I hope that my hon Friend in replying will be able to make some reference to the point I have made.

8.45 p.m.

Mr. Barber: In a sense, my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) has given me notice of this point by tabling Amendments which appeared on the Notice Paper this morning. He has very clearly explained the main purpose of paragraph 12. He has pointed out one way in which he considers that the paragraph is defective. It is important, in view of a particular case which may be covered by what I shall say, that I should make clear what my understanding of my hon. Friend's point is. I understand him to be saying that in some cases a company amalgamation can be effected by way of a scheme of arrangement under Section 206 of the Companies Act, 1948, whereby the existing shares in, say, company B are not acquired by company A but, as my hon. Friend put it, are cancelled and company B issues new shares to company A, it being procured as part of the scheme that company A issues shares to those persons whose shares in company B have been cancelled. It is necessary, in view of what I now propose to say, that I should get that clearly on the record, because we have since this morning carefully considered the point which was set out in the Amendments.
We certainly accept in principle that the provisions of paragraph 12 should be extended to cover shares issued under amalgamations of the type which I have described effected by way of a scheme of arrangement under Section 206 of the Companies Act. Having said that, I hope that my hon. Friend will be satisfied, even though on this occasion he has no opportunity of withdrawing his Amendment.

Mr. Mitchison: If I may introduce a discordant note into the harmonious self-congratulation which is proceeding between one hon. Member and another on the benches opposite, I want to say that I shall not repeat all that we have said about this tax which we are now leaving. It was conceived, whether by way of evasion or avoidance, to dodge the question of a proper capital gains tax. It consists, in effect, of a net—that is to say, a number of holes with bits of string around them. We have found one Treasury fib already in the middle of it. I have not the least doubt that, if we worked carefully through the incredibly complicated morass of the Ninth Schedule, we should find quite a number of others.
It will be dodged. Of course it will be dodged. The hon. Gentleman was right in saying that further legislation will be needed. All I can say as we leave it is that I think it will be dodged rather more than any of the other provisions of the Income Tax Acts with which we have to deal annually by way of avoidance Clauses.

Mr. Barber: Having spent last Sunday reading the Ninth Schedule, I am most grateful to the hon. and learned Gentleman for his generosity.

Question put and agreed to.

Schedule, as amended, agreed to.

Tenth Schedule agreed to.

Orders of the Day — Clause 16.—(BOUNTIES PAYABLE ON VOLUNTARY EXTENSION OF ARMY SERVICE.)

Question proposed, That the Clause stand part of the Bill.

Mr. John Morris: Although I am in general agreement with the Clause, I wish to raise one or two points on how it has become part of this Measure. It must be treated as a

special Forces Clause. Obviously, to get the necessary recruitment, special measures were needed, and I go a long way in supporting the Secretary of State for War, whose scheme it is, in his object of getting more recruits for the Army. The bargain had been made, services had been rendered and they had to be paid for in the form set out. I doubt, however, whether all possible care has been taken, and that whether everything has been done properly. I feel strongly that no unfairness should be shown as between one class of soldier and another and, as I shall seek to demonstrate, there has already been unfairness.
The scheme mentioned in the Clause was introduced on 19th July, 1961, and the present aim is to ensure that the bounty that has been paid to the men who have enlisted under that scheme will not be liable for Income Tax. The money has been paid out. I shall deal with the details in a moment, but the object of the scheme was to get Regular soldiers to re-enlist before April of this year. I think that it ran out at the end of April, 1962.
Where was the Parliamentary authority for not recouping tax from the money that has been paid out by way of bounty? We have a Clause introduced into this Bill, ex post facto, seeking to make that bounty, which has already been paid, not liable to tax. The tax may or may not have been collected—I understand that it has not been collected—and I want to know why there should be inserted in this Finance Bill, in May, 1962, a Clause seeking to give Parliamentary authority for the non-taxation of money already paid out by way of bounty to men who have taken advantage of the provisions of the scheme by re-enlisting before April of this year.
To begin with, there is nothing in the Clause about the scheme. I have tried as best I could to find out what is meant by "the scheme" referred to in the first line. I thought that there might have been a public document specifying the exact terms of this somewhat less than grandiose title of "a scheme". The only reference we have here is to
…the scheme introduced on the nineteenth day of July, nineteen hundred and sixty-one…
There has been no official publication setting out exactly what the scheme is.


The only reference to it that I can find is in a statement made after Questions by the Secretary of State for War on 19th July, 1961. He was then making a statement on Regular Army recruitment, and in one short paragraph half way through that statement he referred to what he had done
…to launch a drive to get as many soldiers as possible to remain in the Army at the end of their 'National Service or their current engagements.
No document at all has been published. The only mention of it is, as I say, in one short paragraph in that statement to which I have referred. The Secretary of State for War said:
To this end, I have decided to offer a bounty of £200 to Regular soldiers due to leave the Army before the end of June, 1963,"—
This is the bounty and payment about which I am speaking
with nine years' service or less, who extend their service by at least three years. This offer will be open as from today"—
That was 19th July, 1961—
until the end of April, 1962. Similarly, a bounty of £200 will be offered to National Service men now serving who from today enlist on a Regular engagement."—[OFFICIAL REPORT, 19th July, 1961; Vol. 644, c. 1244.]

Mr. Callaghan: I do not know whether my hon. Friend has noticed that there is no representative of the War Office present. He is putting a case to which certainly a Treasury Minister is not as well able to answer as would be a War Office Minister. I hope that my hon. Friend will pursue the matter until a representative of the War Office appears—someone who can give him the sort of answer he deserves.

Mr. Morris: I had not anticipated that there would not be a War Office representative here. However, being charitable by considering that the Clause might have been called earlier than expected, I had hoped that before I ended my remarks there would be someone here able to give me a satisfactory answer.
The scheme referred to in the quotation I have just read from the OFFICIAL REPORT—the only one I have found—appeared in that short paragraph of a speech made by the Secretary of State for War in July last year. I think that I have represented the scheme in a fair

way by saying that it offered to pay a £200 bounty to people who took advantage of the offer from 19th July until the end of April, 1962. There is no reference at all to tax. I should have thought that the bounty—and this lends force to my argument about why there should be a specific Clause—would have been even more attractive had the Minister said that it would be tax free.
If the Secretary of State for War had intended at that time that it was to be a tax-free payment, why did he not make that fact perfectly clear? Indeed, it would have been an added advantage to his recruiting drive if he could have said, "I am not only giving you £200 but it will be tax free". Had all this been properly thought out by the Government I would have expected to hear the Secretary of State for War announcing much earlier that the bounty was to be a tax-free payment.
I have checked the Pay Warrant, the only other document which has any other reference to the Clause—Pay Warrant No. 621 of 21st July last year—which stated that a soldier who re-enlisted, re-engaged, extended or prolonged his Colour service would receive such bounty as might be specified at the time of the undertaking in a current scheme approved by the Army Council. There was no reference in that document to a tax relief of any kind. I have also checked the Queen's Regulations. I have the full volume comprising these regulations with me but I will not read it all. I failed to find any reference in it to the £200 being tax-free.
I had to wait for three more days before the first information appeared about it being tax free. The information came, strangely enough, in a Reply to a Question asked by my hon. Friend the Member for Barking (Mr. Driberg), who asked whether the bounty of £200 would be tax-free. In a Written Answer the Secretary of State for War said:
That is the intention. Legislation will be introduced in due course.
I presume that the Clause under discussion is the legislation referred to.
Tax will not be charged on the bounty paid in the meantime."—[OFFICIAL REPORT, 24th July, 1961; Vol. 645, c. 15.]
The only indication that has been given to hon. Members that this £200 bounty


is tax-free was in reply to a Question asked by one of my hon. Friends—
Tax will not be charged on the bounty paid in the meantime.
What is the authority for that? What is the Parliamentary authority for the Secretary of State for War to sit like a sort of Mikado in the War Office and to say "I will have a bounty scheme. Everyone who avails himself of that scheme before the end of April, 1962, will get a bounty of £200 and it will be tax-free. Tax will not be charged on the bounty paid in the meantime."
9.0 p.m.
Why was the House not told on 19th July that the £200 was to be tax-free? Why should it have to be elicited by one of my hon. Friends? In the meantime, what was the Parliamentary authority for not charging tax on the bounty? I should have thought that was an important question. I should have thought it rather strange that money should be paid out in this casual way in accordance with a scheme drafted exceedingly casually and that the terms of the scheme were not embodied in a document or a statement.
We hope that by means of the Clause we can go some way to mitigate the effect of the "welshing" by the Government in connection with the Grigg Report. But it seems that another class of soldiers, the "Ever-readies", who do not seem to be covered by this Clause, will have their bounties taxed. On 27th November, 1961, the Secretary of State for War, on introducing the Army Reserve Bill, stated that the "Ever-readies'" £150 a year would be taxable, whereas when they were called up their gratuity of £50 would be tax-free. It seems strange that the Government should differentiate between one class of soldiers and another. Those who reenlist within the terms of the scheme of 19th July get their £200 tax-free, because of the retrospective effect of the legislation. The "Ever-readies", who perform a similar function, get £150 which is taxable and £50 tax-free. I should like, if possible, to be told by a representative of the War Office why there is this differentiation.
I should like to know what is the cost of this Clause. How many men are affected? Has the scheme referred to in

the Clause proved fruitful? What type of recruits have been attracted by the scheme introduced by the Secretary of State on 19th July? Do they include any who would have become regular soldiers in any event? I am anxious to know, having paid out this money apparently without authority, whether we are getting value for that money.
I do not intend to go on any longer, but I hoped that somebody from the War Office would be here to reply to these remarks. It seems strange that we have here a scheme conceived in this most casual of casual ways, merely referred to in a brief paragraph in the statement made by the Secretary of State for War after Questions, and that that scheme should contain no reference at all to the fact that this bounty is tax-free. An hon. Friend of mine on this side of the Committee has to find this out five days later by a Written Question, and he is told that, and the Secretary of State for War takes it upon himself to say that, the tax will not be charged on the bounty paid in the meantime. Was the Treasury consulted about this? What was its view? Was this the view of the Law Officers of the Crown that there was no need for Parliamentary authority not to charge tax on this bounty?
I am very anxious indeed that we should have a large, proficient Regular Army, and I am very anxious indeed to do everything I can to assist recruiting, but is this the right way to do it? Is this the best way, by paying out these large sums of money without any apparent authority? I would have thought the only way this could be done properly would have been to have introduced the legislation forthwith after 19th July and then to have paid out the money. I may seem to be naive about this, but it seems strange to me that we can visualise a situation where the Secretary of State for War can conceive a scheme of this nature and take it upon himself to say, as he said on 24th July, tax would not be paid on the bounty in the meantime. I should like an explanation of this matter.

The Chief Secretary to the Treasury (Mr. Henry Brooke): As formerly Minister for Welsh Affairs I am rather sorry that the hon. Member for Aberavon (Mr. Morris) should have spoken in that tone about welshing. He says the


procedure in this matter has been as casual as could be. It has precisely followed the procedure operated by the Labour Government in 1946 and again in 1951. I can certainly answer his questions. The amount involved is about £100,000. The number is something over 3,000. There is no unique character about this. Bounties of this kind have always been free of tax, and I am quite sure that the hon. Member for Sowerby (Mr. Houghton) will confirm that extra-statutory concessions are not unknown when Parliament has been informed that the necessary legislation will be introduced.

Mr. Morris: The right hon. Gentleman has said that bounties of this nature have always been tax-free. With respect to the right hon. Gentleman, he is quite wrong in this. I gave the recent example of the "Ever-readies". Their bounty of £150 is taxable.

Mr. Brooke: That, of course, is not a bounty. The bounty is what is paid to the "Ever-readies" when they are actually called up for service. If the hon. Member cares to look into it further he will find that it is tax-free under existing legislation.
The position here is that my right hon. Friend the Secretary of State for War announced this scheme in July, 1961, and in his original announcement, which was, of course, fully discussed with the Treasury, he no doubt assumed that Parliament would be aware that, according to the precedents, bounties of this character were exempted from Income Tax. A Question was put to him by the hon. Member for Barking (Mr. Driberg) about this. Later, he made this specific statement, and in accordance with the statement, and pending the first opportunity of introducing the necessary legislation, tax has not in practice been charged on these bounties.
As to the precedents, the hon. Member will find that Section 30 of the Finance Act, 1946, exempted certain bounties and gratuities payable under a scheme—I stress that word—which was announced in Parliament on 15th April, 1946. That was superseded by a further scheme, and the bounties under the later scheme—the 1950 scheme—were exempted from Income Tax by Section 24 of the Finance Act, 1951. That is broadly the story of this matter.
I feel that, in raising the question, the hon. Gentleman does not want to cast any doubt as to whether these people should receive their bounties tax-free. I hope that that is accepted by all of us. In reply to his speech, I stress that we have been precisely following the precedents here and that, in accordance with the statement of July, tax has not been collected. As I have said, the amount of tax involved in the provisions of Clause 16 is about £100,000. I hope that that answers the points which the hon. Gentleman raised.

Mr. Callaghan: I am sorry to hold up the proceedings, but I am very dissatisfied with what has happened. It is a pity that the harmony of our proceedings so far should be disturbed, but I certainly expected to see a Minister from the War Office on the Government Front Bench to answer this question. I should like to ask the Chief Secretary why we have not had the benefit of a Minister from the War Office to deal with the case put by my hon. Friend the Member for Aberavon (Mr. Morris).

Mr. Brooke: Because it is a question of tax.

Mr. Callaghan: I am sorry, but if that is the only answer and the right hon. Gentleman relies on precedents, I, too, shall rely on precedents in this case. I do not know what the procedure has been in recent years—maybe the Government have become slipshod—but as long as I have any responsibility here I do not propose to allow them to get slipshod about the attendance of Ministers in the House.
I well remember in the past when I sat on the Government Front Bench that whenever there was a Clause in the Finance Bill affecting the interests of any Department other than that of the Board of Inland Revenue or the Customs and Excise, for which the Treasury Ministers responded, the Minister was always there to account for it. How do I remember it so well? It is because I had to come and do it myself, and I spent many weary hours sitting on the Government Front Bench waiting to answer questions put from the Opposition side of the House. I know that times change—

Dr. Alan Glyn: I did not notice represented on the Opposition Front Bench the Opposition spokesman for the War Office.

Mr. Callaghan: The hon. Gentleman is quite wrong. My hon. Friend the Member for Aberavon has special responsibilities for the War Office, and it is in that connection that he has raised this matter. [Interruption.] I do not know why the hon. Member neighs like a horse when I say that, but my hon. Friend has made a perfectly good case on this subject. If we are not to get slipshod about this matter, the Committee and the hon. Gentleman opposite ought to have some concern about the treatment of these issues. It is simply not sufficient to say that the Chief Secretary can come here and tell us the answers to all these questions. I believe that the former procedure was right. The Minister who is responsible for introducing the scheme should be here to reply to the debate on it and deal with it and answer any questions arising from it.
My hon. Friend asked a number of questions. The Chief Secretary has replied to some of them, especially on the financial side, giving the only replies that he could. For instance, he has told us what the cost is. But he has not accounted for the difference in treatment between the "Ever-readies" and the Regular soldiers. My hon. Friend pointed out—I have no doubt that he will take occasion to point it out again because I am not disposed to allow the Clause to go without some discussion on it in the absence of a Minister from the War Office—that the "Ever-readies" are receiving different treatment from that accorded to Regular soldiers. As I understood my hon. Friend, a Regular soldier will receive a bounty of £200, and if the Committee passes the Clause, as no doubt it will do in due course—because all of us want to see this relief granted—the Regular soldier will receive relief in respect of the whole amount. I am sure that is right and I do not disapprove of it.
9.15 p.m.
I hope this interval is being used by the Front Bench opposite to see where the representatives of the War Office are. In the meantime, I understand that the "Ever-readies" are receiving a similar bounty of £200 if they are called up, £50 of which is to be free of tax and the remaining £150 taxable.

Dr. Glyn: Dr. Glyn rose—

Mr. Callaghan: I am sure that the hon. Gentleman aspires to be a Minister in the War Office, but he is not one yet, and I want to hear the Secretary of State or the Under-Secretary of State explaining the difference in treatment of the "Ever-readies" and the Regulars in this matter. What is the case for it?
If there were any case for relief from taxation I would hazard the view that the "Ever-ready" is more entitled to a tax-free bounty than is the Regular who signs on at the expiration of his term of service. I understand that the Regular will get his bounty if he signs on, but look at the difference between him and the "Ever-ready".
The Regular soldier is already in the Army. The whole tenor of his life revolves round the Army. Perhaps he is in billets or with his wife and family in married quarters. Certainly there is no disturbance to his life if he signs on again. He continues the same sort of existence that he had before. I think I am right in saying that. The Regular is to get the bounty tax-free.
The "Ever-ready", on the other hand, is a man taking responsibility upon himself to sever his connections with civilian life and go into the Army. He will have to break those civilian connections. He will be liable to a great many financial responsibilities. He will probably be a young married man, because it is from this type of man, in the late twenties and early thirties, from whom this group is to be drawn. He will have family responsibilities and might well be buying a house—or might have been buying a house had the Government not suspended the house mortgage scheme and raised the interest rates. That in itself has prevented many men who would become "Ever-readies" from buying their own homes.
But these "Ever-readies" will find that when they leave their civilian occupations and go into the Army they will not have the same sort of financial conditions. An "Ever-ready" in civilian life will probably get the average civilian earnings of £15 9s. 11d. a week. In the Army, he will not get that, certainly not as a private.
The Government have given an increase of 64 per cent. to privates as


from 1st April last and intend to give a further 6·4 per cent. as from 1st April next, but they should, of course, under the terms of the bargain they made, have given the whole of the 12·8 per cent. as from 1st April last. The Grigg Committee envisaged a regular review of pay at two-yearly intervals and there is no doubt that the Government have broken their bargain to the Armed Forces. Fifty per cent. of the increase which the men should have had as from 1st April last is being deferred for twelve months in the interests of the pay pause.
I put it to the Committee, as I would have put it to the Secretary of State for War had he attended, or to the Under-Secretary of State for War if he had deigned to honour us with his presence, that this is asking rather too much of these young men. These "Ever-readies", who are called upon to break into their civilian life, who will very likely he called upon to accept much lower rates of pay in the Army than they got in civil life, will find that all their civilian liabilities will continue when they go into the Army just as they existed in civilian life, but for some mysterious reason which the Chief Secretary has certainly failed to explain to the Committee so far but which, no doubt, if the Secretary of State for War were to arrive he could explain, or if the Under-Secretary of State were to attend he could tell us, we have had no explanation at all up to the moment.
There is not the slightest doubt that the "Ever-readies" are being treated in a way which leaves them financially worse off than the Regular soldier who signs on. I think I have shown—and others of my hon. Friends will want to take this up—that if there is any relief from taxation to be given, it should be given to the "Ever-readies", not rather than to the Regulars but the same amount of relief as is being given to the Regulars. I am delighted that this relief is being given to the Regular soldier. I think it was a very sensible notion and, on the whole, I do not want, and my hon. Friend who raised the matter certainly would not want, to take objection to the fact that the Secretary of State for War on 21st July last anticipated the decision of the House.
I think that the Secretary of State for War was right to presume upon the decision of the House and to assume that

we would be willing and agreeable, when the matter was properly presented to us in the course of the Finance Bill, to give relief to the Regular soldier in respect of this bounty. But although I think that the Secretary of State was right to assume that the Committee would be willing to give him this Clause, he has no right to presume on the good will of the Committee and to absent himself from it. This is what I am concerned about. I think that the tenor of my speech has shown quite clearly that I have no intention, until we get a better explanation, of letting the Committee depart from this Clause. We have cooperated very well in the course of this debate, and we shall continue to do so, but there is no reason why Ministers should get slipshod in their attendance. They should be here. They are not asked to attend over-much in this Committee. We have finished our debates in reasonable time, and it would be a very great pity if we were to find ourselves in a position in which we had to continue the debate for a very much longer period than we otherwise intended to do.
My hon. Friend had other questions to ask about this. He asked what was the authority for the relief of tax for the "Ever-readies". The Chief Secretary, in his hasty reply, did not tell us. I noticed how quickly the Chief Secretary got up. I do not know whether he was hoping to get the Committee away from this Clause quickly before we had noticed the absence of either the Secretary of State for War or his Under-Secretary. If that was his intention, we forestalled it.
I should like to repeat a question put by my hon. Friend which has not yet been answered. Was it in the last Finance Bill debate that the Chancellor, or the Financial Secretary—or the Secretary of State for War or the Under-Secretary of State if they came to the Committee in those days—asked the Committee for permission, which I am sure would have been given them, to relieve the "Ever-readies" of £50, and, if so, did they give an explanation to the Committee why it was only £50 they were asking for and not £100, or indeed, the whole amount? I believe, and I imagine that my hon. Friend who raised the issue would agree, that if the Committee were requested to give exemption to the "Ever-readies" in respect of the


whole of their bounty there would be no objection that we could see from this side of the Committee to doing so. If that is so, we are certainly entitled to an explanation from the Secretary of State for War, when he deigns to visit the Committee, or from the Under-Secretary.
I know that the Secretary of State for War has many responsibilities, but we have two Ministers at the War Office, and I suppose that we have two Ministers there so that they can relieve each other when official duties prevent one of them from coming here. If they came, they would be able to explain to us why they do not believe that an "Ever-ready", with his civilian responsibilities, which would undoubtedly continue when he was called to serve, should be relieved of the total amount of tax which he is now called upon to pay. For the life of me, I cannot see why this should be so.
The Chief Secretary referred to arrangements in earlier days. I well remember that in the course of a recruiting drive in 1950, under the Labour Government when I was then serving in the Admiralty, we gave incentives to men to sign on. Those incentives were relieved of taxation and I think that my hon. Friends will probably agree that there was no reason why they should be taxed then, any more than there is now. We found great difficulty in those days in getting recruits. Perhaps it was because the men were war-weary. The war was only five years before and the fighting in Korea had broken out and it was very difficult indeed to get men to sign on. I am sure that we were right to relieve them of the whole of the taxation on the bounties which were paid to seven-year men in the Navy who signed on for a further twelve and the five-year men who signed on for a further seven years.
Is the Treasury now getting so mean that it will not relieve the "Ever-readies" of a similar liability because men are now more freely available, or does the Secretary of State for War just not care? Has the Under-Secretary nothing to tell us about it? What is the reason for the difference in the treatment of the men who were called up in 1950, at the time of Korea, and that of the men who are now being invited to and who

are willingly agreeing to sign the "Ever-ready" terms of agreement? It would be the meanest thing on earth if the Treasury were to say that it is now easier to get men and therefore the terms which were offered in 1949 and 1950 do not now have to be offered. It would be mean, but in some ways it would be typical of a Government who have forestalled an increase due to soldiers, sailors and airmen, which was 12·8 per cent. but which has been reduced to 6·4 per cent.
We are entitled to answers to some of those questions and I hope that they have now been conveyed to the Secretary of State or to the Under-Secretary, because we would be enabled to proceed with much greater celerity if we had a statement from one of those responsible Ministers giving us the answers to the questions which my hon. Friend has put.
My hon. Friend recognises that we are in Committee and that his right to speak has not been exhausted. He is entitled to repeat his questions, if he wishes to do so, until he gets an answer, and I have no doubt that he will find it convenient to repeat his questions so that he can be satisfied, as one who takes a close interest in the affairs of the Armed Services. When he gets clear answers, the ripples will die away and we shall be able to proceed with the other Clauses in the same spirit which we have had on the previous fifteen.

Mr. Brooke: I must correct some of the mistakes made by the hon. Member for Cardiff, South-East (Mr. Callaghan), because he is evidently unable to distinguish between an annual bounty and a once-for-all payment. It is the once-for-all payment which should be free of tax. The annual bounties, whether to Territorials, "Ever-readies", or others, are taxable. That is the general rule.
9.30 p.m.
As I sought to explain, these once-for-all bounties, which are quite distinct from the £150 a year offered to a man who signs on as an "Ever-ready", would be taxable but for this Clause. That is why this Clause is introduced, and I trust that I carry the Committee with me in saying that we should exempt these once-for-all payments from tax.
So far as I am aware, there has never been any question of exempting from tax an annual bounty which is made


payable to men who are willing to serve in the Territorials or one of the Reserves. That is the essential distinction.

Mr. Houghton: Would the right hon. Gentleman say that in fixing the amount of the annual bounties the fact that they were taxable was taken into account?

Mr. Brooke: Certainly, and indeed I think that it would be surely right to do so, because these men to Whom annual bounties are made payable are men going about their ordinary work, and it would be unfair to give a high Surtax payer whatever £150 was grossed up—it would be something quite substantial—whereas if we were paying the same amount of bounty to a man who was living on a very small income it would be of far less value. Therefore, the fact that they are liable to tax is taken into account; and these ad hoc once-for-all bounties should be nontaxable.

Mr. Morris: The right hon. Gentleman has given a different explanation from the one he gave ten minutes earlier. His explanation now as regards the "Ever-readies" is that they are not being paid a tax-free bounty because it is an annual one. In his speech ten minutes ago—and he will see this if he reads HANSARD tomorrow—the said that the reason why he was differentiating was because it was not a bounty. It was called a bounty, but was not in fact one. The right hon. Gentleman is now saying that it is a bounty, but an annual one, and that is the difference. Which is it?

Mr. Brooke: I am not sure how closely the hon. Gentleman followed the proceedings on the Army Reserve Act when all these things were explained. The "Ever-ready" may receive payment in two forms. He receives £150 a year for signing on and expressing a willingness to undertake certain responsibilities.

Mr. Houghton: A retainer.

Mr. Brooke: Yes, that is the best way of describing it. He then receives a once-for-all payment, which is a payment by way of compensation for disturbance if he is actually called up.
It would surely be wrong that that payment by way of compensation for disturbance should be taxable. Equally it would be wrong that the other general income of the Reservist or the "Ever-ready" should not be taken into account when he receives £150, or £50, whatever it may be, as an annual retainer.
That is the distinction. I have made it as clear as possible, and I think that this is essentially a tax matter. I assure the Committee that the Treasury has been fully in touch with these matters all the way through, and that the announcement in 1961 as well as all the arrangements under the Army Reserve Act were fully discussed and agreed with the Treasury.

Mr. Morris: I welcome the Secretary of State for War, for obvious reasons. Perhaps at the end of our discussion on this Clause we might have a brief word from him on some of the matters that I have sought to raise and which, in compliance with the invitation of my hon. Friend the Member for Cardiff, Southeast (Mr. Callaghan), I shall raise again because I am not satisfied with the explanation given by the Chief Secretary.
The right hon. Gentleman castigated me for using the word "welshing" and tried to make a pun on the part of the country that I have the honour to represent and on his previous office as Minister for Welsh Affairs. It is the Government who have experience of welshing, and, like many others, I feel strongly about the conduct of the Government and their failure to implement that part of the Grigg Report which dealt with soldiers' pay.
I seek to put the questions to the Secretary of State for War since he is now here and since the only reference we have in the Clause is to the scheme introduced on 19th July last year. Looking back to HANSARD for 19th July, in order to refresh the memory of the Secretary of State for War I should say that he set out the scheme in a short paragraph in the course of a statement he made about Regular Army recruiting. This is what he said:
To this end, I have decided to offer a bounty of £200 to Regular soldiers due to leave the Army before the end of June, 1963, with nine years service or less, who extend their service by at least three years. This offer will


be open as from today until the end of April, 1962. Similarly, a bounty of £200 will be offered to National Service men now serving who from today enlist on a Regular engagement."—[OFFICIAL REPORT, 19th July, 1961: Vol 644, c. 1244.]
The Secretary of State for War—having followed closely, as I am sure he has, my reading of HANSARD—will not be able to recall any reference to tax exemption in that paragraph setting out the scheme in the offer he was making. The scheme referred to in the Clause made no reference whatever to that.
I should have thought that if an offer by the Secretary of State for War is worthy of the title of scheme, there should be the whole of the material parts of that scheme set out in any statement which the right hon. Gentleman makes to the House. Since the tax element is obviously an important part in the offer made concerning recruiting, I should have thought that would be of paramount importance and it should be found in the scheme as set out by the right hon. Gentleman in the House on 19th July. If he omits a significant part of the scheme he does—unwittingly—mislead the House as to the terms of the scheme. He cannot introduce a scheme and merely say, according to the terms of the Clause, there will be a £200 bounty and omit any reference whatever to the significant part of the scheme, the tax-free element.
I should have thought it elementary courtesy when the Secretary of State informs the House of a new scheme that he is making as part of his drive for more Regular soldiers that at that time he would tell the House that this Clause would have to be introduced at some future date and that he had that intention at that time. To put it at its most charitable, either the Secretary of State forgot to increase the tax-free element in the statement he made to the House or he left it out for some other reason which I cannot imagine, or thirdly it was not thought about at the time that the scheme was introduced. It was introduced in a slip-shod manner and t was not until a Question was put by my hon. Friend the Member for Barking (Mr. Driberg) on 24th July that the first reference was made to the tax-free element.
It seems strange that when important schemes of this nature are announced in

the House for the benefit of everyone in the country who seeks to avail himself of the offer made we should have to wait until a Question is asked by one of my hon. Friends before we can be told the exact terms of the scheme. The question I am asking, which the Chief Secretary failed to answer because obviously he did not know the answer—

Mr. Brooke: I gave the precise answer.

Mr. Morris: The right hon. Gentleman failed to tell the Committee why on 19th July when the scheme was introduced in the House the Secretary of State made no reference at all to this tax-free element. If the right hon. Gentleman thinks that he has answered I have failed completely to understand the speech that he made a few minutes ago. I still await an answer to my question why, on the date when the scheme was introduced, no reference was made to its being tax-free, and why we had to wait until my hon. Friend the Member for Barking put down a Question, five days after the announcement of the scheme, before we were told what the position was. It seems elementary that when a scheme is introduced its full terms should be announced, and that the House should not have to wait until a Question is put down.
The Chief Secretary relied on precedent for taking this action without Parliamentary authority. He told the Committee that the Government were taking the first opportunity they had, in this Bill, to introduce the necessary legislative authority for not taxing these payments. Are we, therefore, to understand that until the Bill is passed no legislative authority whatsoever exists for making these tax-free payments?
I endorse what my hon. Friend the Member for Cardiff, South-East said: I am anxious that these payments should be tax-free. But I want a clear answer to the point that I have raised. Whatever the precedents may be, the Committee should have a far closer grip on the payment of public money in this way. By the time the Bill becomes an Act almost a year will have passed since the scheme was announced, and during that time there has been apparently no legislative authority for what has been done. The Chief Secretary will recall the


Army Reserve Act. That provided an opportunity for giving the necessary authority for this payment.
My hon. Friend the Member for Cardiff, South-East referred to the position of the "Ever-readies". In his first reply the Chief Secretary stated that the difference there was that the £150 was not a bounty and that the "Ever-readies" would not therefore be covered by a provision of this nature. In his second reply he said that it was an annual bounty. He must choose between his two statements, and tell the Committee what the real answer is. Although the payment to the "Ever-readies" is of a different nature I find it difficult to differentiate between the two classes of volunteer. I would like to see the "Ever-readies" given the same advantage as the people who have benefited from the bounty of £200.
Is there any precedent for the whole of an offer of this kind being paid out before legislation is sought to justify that payment? This is not a continuing bounty, which will go on to the next financial year. This has come to an end. All this money has been paid out without Parliamentary sanction.

9.45 p.m.

Mr. Callaghan: I should like to thank the Secretary of State for War for coming to the Committee. We believe that it makes for much more harmonious discussion if the Minister, who was no doubt responsible initially for putting the Clause in the Finance Bill, is here to assist us.
I should like to ask him, in addition to the questions put by my hon. Friend the Member for Aberavon (Mr. Morris), to deal with this point. I understand from replies, given hitherto by the Chief Secretary to the Treasury that the scheme will, or does, cost £100,000. I am not quite sure which it is, and perhaps he will clear that up. We spend much time discussing sums far less than £100,000, and I think that it would not be unreasonable for us to ask the Secretary of State for an assurance that the money being voted here is, in fact, achieving the result that he hoped that it would when he brought it before the Committee. We should be glad to hear from

him that the response in terms of those willing to re-engage has been of such a character as to justify the Committee writing this scheme permanently into the statute, so that this exemption will continue.
I think that the Committee would be much more satisfied if we had a statement and a reassurance from the Secretary of State on that point. I hope that it is true. We want his scheme to succeed. I do not want a return to the system which, I think, one of his generals at the War Office recently said might have been good for the country but nearly wrecked the Army. I should be grateful to hear from him that the money we are now being asked to vote is achieving the purpose he expected when putting it into the Finance Bill.

Mr. Brooke: The hon. Member for Cardiff, South-East (Mr. Callaghan) spoke as though this were a continuing scheme. The scheme, in fact, came to an end in the period between the publication of the Finance Bill and today. Therefore, nothing that we can do or not do here today will make any difference to the military value of the scheme which terminated at the end of April. I gave the figures of those who are affected by it and the amount in question.
In reply to the hon. Member for Aberavon (Mr. Morris), I would say that if anything wrong had been done by any public authority in this matter by not collecting the tax instantly, I have no doubt that the Comptroller and Auditor-General will bring it to the notice of the Public Accounts Committee. I have every reason to believe that the Public Accounts Committee does not look with any disfavour on what has long been the practice of the Department concerned, that when a Minister of the Crown announces in the House during the course of a financial year that legislation will be introduced at the earliest possible opportunity to exempt certain payments from tax, the tax is not collected for the remainder of that financial year. On those sums tax is not collected which would have to be repaid after the Bill has reached the Statute Book. It would cause great inconvenience to all concerned, particularly to the recipients of the money, who were eventually to be exempted by will of this House, if first


they were called upon to pay and then had the money handed back to them.
As regards the precedents, the hon. Member for Aberavon was criticising what I think he thought was the vagueness of the reference to the scheme. I can but refer him to the Consolidation Act which consolidated the Finance Acts of 1946 and 1951 and many others with regard to Income Tax. If he looks at Section 457 of the Income Tax Act, 1952, he will see more than one reference to the scheme, with a date attached to it as the date on which it was announced. I do not think that there is any element of dubiety or uncertainty there. It has been a regular practice when schemes of this kind have been announced involving ad hoc bounties or gratuities that they shall be exempt from tax and every opportunity has been taken as soon as possible to exempt them. But there is a clear difference between an ad hoc once-for-all payment and the annual bounty which, for reasons I gave and reasons which I think commended themselves to the Committee, is subject to tax. Otherwise the value of the payment would vary enormously as between a man who paid a lot of Surtax and a man who paid a low rate of tax.

Mr. Morris: Will the right hon. Gentleman try to answer the question which I have posed now two or three times? When this scheme was announced on 19th July, 1961, why did not the Secretary of State for War make clear that it was tax-free? Why do we have to wait until Questions were put down by one of my hon. Friends in order to get the answer? Why was it not put as part of the scheme when that scheme was announced?

Mr. Brooke: I can but repeat the answer I gave before, and my right hon. Friend the Secretary of State for War can add to it or modify it as he wishes. I have no doubt that my right hon. Friend made the statement in the form in which he did because he took it for granted that Parliament was aware that once-for-all payments of this kind, by tradition, were tax-free, as distinct from the rest. It was perfectly reasonable for an hon. Member to get that on the record by asking him a question at a later date. But, so far as I am aware,

it did not cause any uncertainty in the minds of anyone. It would have been a remarkable departure from precedent if a bounty of £200 had been offered to certain people for prolonging their service and then they found that they were taxed on it.

Mr. Eric Fletcher: Surely we are to have a reply from the Secretary of State for War before we conclude our discussions on this Clause? After all, the Chief Secretary has done his best to extricate the Secretary of State for War from a very difficult and embarrassing position. The Chief Secretary has made three speeches, and in his last speech I thought that he gave a very obvious hint to his right hon. Friend when he said that the Secretary of State for War could either add to or subtract from what the Chief Secretary had been saying.
My hon. Friends raised this matter and they had to do so at length, and sometimes to repeat their questions, because the Secretary of State for War was not in the Chamber, as he ought to have been, when the discussion on Clause 16 started. But now the right hon. Gentleman has been in the Chamber long enough to have heard the question put to him. I do not think it good enough that he should sit silent and allow the Chief Secretary to the Treasury to take the responsibility for attempting to answer a question which has been put repeatedly to the Secretary of State for War.
We are entitled to an answer from the Secretary of State. He has had an opportunity to listen to the question being put, and I hope that he has made up his mind and is able to give us an answer to which the Committee is entitled before we part with the Clause. May I repeat the question and give the Secretary of State another opportunity to do himself justice and to give an explanation which may satisfy the Committee, if he is able to do so.
The Secretary of State for War announced an offer in the House of Commons on 19th July, 1961, which, curiously enough, is called a "scheme" in this Bill. I do not want to be technical, but I have never seen such a Clause as this in a Finance Bill. I think I am entitled to assume that what is


referred to in Clause 16 as the scheme introduced on 19th July is the proposal made by the Secretary of State for War and reported in the OFFICIAL REPORT of 19th July at column 1244. Then the Secretary of State said that he had decided to offer a bounty of £200 to Regular soldiers and National Service men.
The question which has been asked is this. Why did not the Secretary of State for War indicate at that time that it was intended that that bounty should be free of tax? Did the Secretary of State know when he made the offer that he was intending the bounty to be free of tax? If he did know, why did he not say so? Why did he conceal it from Parliament? If he did not know, had he considered it? When was it first considered? Does not the Secretary of State know that in any proposals of this kind which he makes to Parliament he should be completely candid and tell the House of Commons the full facts? If it is intended that some payments should be, tax-free and others not tax-free, he ought to say so. My hon. Friends are not making any complaint on the merits of this tax-free payment. They are in fact drawing attention to the differential which exists between the treatment of this bounty and the treatment of the sums paid to the "Ever-readies". These are the matters on which we ought to have an assurance and a detailed reply from the Secretary of State for War before the Committee can be asked to agree to the Clause.

The Secretary of State for War (Mr. John Profumo): If the Committee will forgive me for intervening —

Mr. Morris: We are delighted.

Mr. Profumo: —at this late hour and since it might be thought discourteous if I did not explain the matter to the Committee, I will very gladly do so. I can only repeat what my right hon. Friend the Chief Secretary to the Treasury has said. When I made this offer or announcement of the scheme—whatever one likes to call it—I felt, rightly or wrongly, that I was acting in accordance with precedent merely by announcing that a gratuity or bounty of this sort would be set up, because I knew that in the past they had been tax-free. I was fortified in my belief that there was no

serious doubt in the minds of any hon. Members who were listening by the fact that no hon. Member cared to rise from his seat and ask me whether it would be tax free. If I had been asked I would gladly have confirmed, as I now confirm, that what my right hon. Friend has said is perfectly correct. I am so glad that the Committee has given me the opportunity of saying this.

Mr. Houghton: I am not being tiresome. I am just trying to assist the Committee to reach a conclusion. The Chief Secretary has referred to Section 457 of the Income Tax Act, 1952, which referred to a specific scheme. I know that my hon. Friend the Member for Islington, East (Mr. Fletcher) will allow me to point out to him that Section 457 referred to a scheme announced on a particular date in 1946, so in that respect there is nothing unusual about Clause 16. The Section not only provided for the exemption of bounties paid under the scheme announced on 15th April, 1946, but went on to provide for a similar exemption of bounties paid
under any other scheme certified by the Treasury to make analogous provision",
and so on. This seems to suggest that the Treasury could certify that another scheme was analogous to the one mentioned here and therefore the bounties under the analogous scheme would be exempt. However, there was a time limit to the period during which analogous schemes could be certified. The time limit was provided in this way—
at any time during the continuance in force of the Emergency Powers (Defence) Act, 1939.
I have not been able to check whether or not the Emergency Powers (Defence) Act, 1939, has now lapsed, but I assume that if it has that is the reason for having to make special provision. If it has not, presumably it would have been certified.
Does that clarify the position, and bring to a head that the need for Clause 16 is that the period covered by Section 457, which gave covering authority to grant exemptions for similar schemes, has lapsed, and that, therefore, special provision has now to be made? If so, we clearly understand why it is now being done, and we understand that it does not run counter to what has been done before.

Mr. Morris: It would be churlish of me not to thank the Secretary of State for War for coming here to assist us. I wish that he had been here earlier; we might then have saved a little time, because I had to repeat myself several times. But I welcome the Secretary of State, and we are glad that he has come here, and has replied.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Orders of the Day — Clause 17.—(MODIFICATION OF RIGHT TO SET CAPITAL ALLOWANCES AGAINST GENERAL INCOME.)

Question proposed, That the Clause stand part of the Bill.

10.0 p.m.

Mr. Houghton: Now, I do have to be tiresome. This Clause is the second one under Chapter 3, and under Chapter 3 we part company with the pilot—the pilot being the White Paper entitled "Taxation of Short-term Gains." We are now moving into the open sea, and I take the opportunity of expressing the hope that explanations might be given of difficult and complicated Clauses in the Finance Bill, even when they do not relate to the taxation of short-term gains.
This Clause is very complicated; it covers about two pages, there are cross-references to the Income Tax Act, and to the Finance Act, 1954. In a moment or two, we shall come to another complicated Clause and, a little later, to yet another. Cannot we be told what these are about before we consider them in detail?
I found that the White Paper enabled hon. Members to get clear in their minds the objects and purposes, and the framework of the new tax, which made it much easier to deal with the technical detail, and the obscurities, problems and Parliamentary draftsmanship in the Bill itself. One or two of my hon. Friends have told me that in our debates they have not found it necessary to refer to the White Paper to understand what the Clauses were about, because the White Paper had registered in their minds and they knew what the Government were after, which made it much more convenient when we were dealing with the Clauses themselves.
I know that on Second Reading the Chief Secretary went through the Bill, but on such an occasion he naturally does not want to dwell too long on obscure Clauses that are not of general interest. In Committee, however, it is mare necessary to get down to the detail, even though the proposals may concern a limited number of people and be of particular interest to specialists and tax advisers. The Committee should know why it is modifying the right to set capital allowances against general income; and what has turned up to make it desirable to modify Section 20 of the Finance Act, 1954—which, itself, is a complicated Section, covering more than a page.
I would therefore suggest to the Chief Secretary that as we come to these several Clauses on which there are no Amendments—I think that the next Amendment is to Clause 20, or to an even later Clause, and we have several Clauses to deal with before that—the might tell us what we are doing. Would it be asking too much of the Chief Secretary just to get up far five minutes to acquaint the Committee with what it is we are doing? We should not legislate in blinkers and no one is more lucid in explanation than is the Chief Secretary. Since hon. Members do not intend to keep the debate going until the Secretary of State for War arrives the Chief Secretary has no problems and can answer the points I have raised, for he has the field to himself.

Mr. Brooke: I will certainly bring to the attention of my right hon. and learned Friend the remarks of the hon. Member for Sowerby (Mr. Houghton) about the advantages of having White Papers. They certainly facilitated our discussion of Clauses 9 to 15, but it would, perhaps, be going too far to produce an explanatory memorandum for every Clause. I will certainly do my best to deal with the Clause under discussion, though I very much doubt whether any explanation of mine will be more crystal clear than the words which we already have in front of us.
The purpose of the Clause is to bring forward by a year the date at which capital allowances can be brought into account by way of claim for relief against losses. This is something which particularly affects the shipping industry,


as the hon. Member for Sowerby will know. That industry has large capital allowances on its new ships and, at the same time, it also has substantial income from investments which are normally set aside against the requirements for the building of new ships. That is the practical reason why the Clause is of more benefit to the shipping industry than to any other. The case for it was brought to the notice of my right hon. and learned Friend by the shipping industry, and I am glad to say that appreciation has been expressed.
If I may seek to put it in a non-technical way, under the present law the capital allowances will only create a loss if they exceed the combined total of the assessment for the year in which they are to be allowed and the profit arising in that year. The assessment will be on the previous year's profits. A firm may not merely have had to wait a year but may not have been able to establish a loss in the second year if the assessment for the previous year and the profit for that year exceeded the amount of the capital allowance. I can assure the Committee that we are not just letting money slip through our fingers. It is true that there will be a loss of revenue of about £6 million in the first year, but it will taper off because the total amount of capital allowances is not itself enlarged by the Clause.
It simply means that, as the law stands, firms must wait—indeed, they have established to the satisfaction of my right hon. and learned Friend that they must wait unfairly long—to secure the advantage of the capital allowances. It is desired at present that the shipping industry should not be unduly handicapped. It must face severe competiton and if anything can be properly done, not by way of special undeserved advantage but by righting a wrong in the existing law, it is desirable that that should be done.
As to the complications of the Clause, they arise out of the difficulties of making provision for exceptional cases—of a new firm being established and one being wound up—and of the possible variations that arise in ordinary tax law.
What I have said explains as succinctly and as clearly as I am capable of expressing the principal purposes of

this Clause. If I or my right hon. and learned Friend are asked about any other Clauses, we shall seek to do the same.

Mr. Millan: This is an important Clause in so far as £6½ million are involved, according to the Chief Secretary, and therefore I think we were entitled to an explanation.
However, I want to raise another point. We now have the position, so far as capital allowances, and indeed losses are concerned, that certain preferential treatment has been given to the shipping industry. It receives an investment allowance of 40 per cent. as compared with 20 per cent. for other industries. Now we are introducing special provisions with regard to losses, which, as the Chief Secretary said, arc specially designed to help the shipping industry. I have no objection to helping the shipping industry in this way, or indeed any other industry which may be in rather difficult circumstances. But if there is a case for this rather negative procedure of helping industries which are in difficulties, there is a far stronger case for helping new and expanding industries to enable them to expand more rapidly.
I want to contrast the special treatment which we give to the shipping industry, which is going through a bad period, with the complete failure of the Government in this Bill, or indeed in any other Finance Act in the last two years, to deal with the whole question of capital allowances in a way which would give stimulus, incentive and encouragement to the new and expanding industries. One sees absolutely nothing about that. There is nothing about allowing them to accelerate their depreciation allowance, nothing about rationalising the whole structure of depreciation allowances. These matters require considerable attention.
As I say, one has no objection to helping the shipping industry, but I wish the Government would do something in a more positive manner for the rest of our industry and particularly for that section of industry which is expanding. After all, the President of the Board of Trade and other members of the Government are continually reminding us that we must not use Government money to prop up the old and inefficient. The old and inefficient must give way to the


new, the modern, the radical and progressive industries. It is the sort of thing that we were told about in connection with the cotton industry, for example.
Yet, if one looks at the taxation legislation one finds that the only industries to which the Government give financial encouragement, by way of investment allowances or anything else, are those industries which are in a decline and for which the Government say we must not use Government money to protect. I wish we could get some encouragement for the expanding industries, and if we cannot do it under this Clause I hope the Government will bear this in mind when framing Finance Bills in the future.

Colonel Sir Leonard Ropner: I wish to express appreciation of what the Chancellor of the Exchequer is proposing in this Clause. I should like to add, however, if I am in order—and I do not think there will be time to pull me up if I am out of order, as I shall be very brief—that the shipping industry has been considering the introduction of Amendments to the Clause. The industry feels that the Chancellor might have gone rather further than he has done, and I should like the Chief Secretary to note that two new Clauses have been tabled which I trust will be called when we reach them.

10.15 p.m.

Mr. Fletcher: I do not think that the Chief Secretary did very well in replying to my hon. Friend the Member for Sowerby (Mr. Houghton). My hon. Friend made the point which, I think, strikes a great many Members of this Committee, that this Clause is an extremely complicated Clause and very difficult for Members of the Committee and for the public to understand. He said how very convenient it was to have a White Paper dealing with the earlier Clauses 9 to 15; that it was of great benefit to all Members of the Committee. He said how very convenient it would have been if we had had a White Paper dealing with Clause 17 and other Clauses.
The Chief Secretary said it was not possible to have a financial and explanatory memorandum dealing with each Clause. But why not? If it is not possible, why, at any rate, is it not possible for the Chief Secretary, before he comes

to explain a complicated Clause like this, or Clauses 18 and 19, when we come to them, to supply himself with a prepared, concise statement of what the Clause is intended to do and what it does, so that if the Chief Secretary makes a speech it can be read and that may at any rate be some substitute for an explanatory memorandum?
Why does the Chief Secretary leave himself in the position of having to improvise, as he himself said, to the best of his ability—uttering some stuttering, rambling explanation of the Clause? It would be far more valuable if he prepared his case properly, and prepared a brief, and was able to tell the Committee what the Clause does, what it is intended to do, and what the substance of it is—in other words, if he prepared a short, intelligent statement which took the form either of a White Paper or of an explanatory memorandum.
Is it too much to ask the Chief Secretary to take the trouble to do that for the benefit of the Committee? I hope that before we come to Clauses 18, 19 and 20, which are even more complicated, the Chief Secretary and his colleagues on the Treasury Bench will take note of that suggestion, because it really is very difficult for people to understand these complicated measures in the Finance Bill, measures dealing with miscellaneous Amendments to the law and with references and cross-references to earlier enactments and earlier Income Tax Acts and all kinds of other Acts. Something is required of the nature of a precise statement equivalent to the White Paper on Clauses 9 to 15. Surely it is not too much to ask the Treasury to do this.
Was the apparent refusal to do it—or the neglect to do it—on this occasion intended to make it more difficult for Members of the Opposition—[HON. MEMBERS: "Where are they?"]—to do their duty in criticising these Clauses? It is not night that we should be asked to deal with complicated Clauses like this at this hour of the night without some far more intelligent explanation of their object and purpose than we have yet had.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Orders of the Day — Clause 18.—(DOUBLE TAXATION RELIEF UNDER FINANCE ACT, 1961 (EFFECT ON DIVIDENDS).)

Question proposed, That the Clause stand part of the Bill.

Mr. Houghton: All I want to do is to ask for the explanation promised on this Clause.

Mr. Barber: The Committee will be familiar with the subject matter of this Clause because it was discussed at some length in Committee on the Finance Bill of last year, and my right hon. and learned Friend in his Budget statement referred—briefly, of course—to the matters covered by this Clause.
The Clause deals with a matter which arises out of provisions relating to double taxation relief Which were enacted in Section 17 of last year's Finance Act. That Section enabled double taxation agreements to be made with other countries, providing for credit to be given for—the Committee will understand the phrase—the tax spared in the other country; in other words, the tax which would have been charged in the other country but for the fact that there was special tax relief which that country granted with a view to promoting development there.
The provisions of the Income Tax Acts which deal with the deduction of tax from dividends do not, however, work properly in cases where a company gets credit for tax spared, and the present Clause is to remedy this defect. If the Committee wishes, I can go into some detail in explaining the way in which this defect has arisen and how it is cured by the Clause. But perhaps it would be helpful if at this stage I were simply to say that the general purpose of the Clause is to secure that on a payment of a dividend a company cannot deduct tax at a rate greater than the aggregate of the rates actually paid here and overseas—

Mr. Jay: Can the hon. Gentleman say whether as a result of the Clause the Exchequer will get more revenue or less? I take it that it gets more. Can the hon. Gentleman tell us how much?

Mr. Barber: I will try to ascertain the answer for the right hon. Gentleman. All I know is that at the moment there are only two cases—I think I am right

in this—where we have double taxation agreements Which relate to tax spared because the provisions were enacted only last year and the amount of revenue is very small. I should have thought that it would have worked to the disadvantage of the Revenue, but perhaps I may look further into that.

Mr. Millan: Why does the hon. Gentleman say that he would have thought that this would have worked to the disadvantage of the Revenue? Does he not know? As I understand it, the purpose is to remedy some defect in last year's Finance Act under which some relief that was meant to be given had not in certain cases been given. Consequently, this must surely work to the disadvantage of the Revenue? Why does the hon. Gentleman say that he would have thought that was so?

Mr. Barber: I said that out of respect to the right hon. Member for Battersea, North (Mr. Jay) who took the view contrary to the view expressed by the hon. Member.
I was about to deal with the general purpose of the Clause. It is to secure that on a payment of a dividend by a company, the company cannot deduct tax at a rate greater than the aggregate of the rates actually paid here and overseas and that where it declares its dividends in a free of tax form, the net amount actually received is not grossed up at a rate in excess of the aggregate of the rates paid here and overseas. I think it will be agreed that this is desirable. If the Committee wishes me to explain it in greater detail, I shall be very happy to do so.
I gave my opinion to the right hon. Gentleman who asked me the question that there would be, I thought, some loss of tax. I understood that the right hon. Gentleman took a different view. I am informed that the Revenue will lose tax, because gross dividends will be lower. As I intimated to the right hon. Gentleman when I gave him a preliminary answer, it is not possible to give an estimate, but I am quite sure that at this stage at any rate it would be very small because the number of dividends to which the Clause would apply would be very small indeed. If on the other hand we enter into arrangements in the coming years with other countries to provide double taxation relief for tax


spared, obviously the amount will be greater, but I should have thought that even then it would not have been very substantial.

Mr. Jay: From the hon. Gentleman's explanation he appeared to me to be implying that revenue would be gained rather than lost. He still does not seem to me to have explained why that is not so.

Mr. Barber: The person who will gain as a result of this will be the individual shareholder to whom the dividend is paid. If the right hon. Gentleman wishes it, I will explain it in a little greater detail.

Mr. Fletcher: Twice now the Economic Secretary has said that if the Committee desires he will explain in greater detail. Since what he has said so far is almost unintelligible, perhaps he will explain the whole thing in detail.

Mr. Barber: I am sorry if I have been unintelligible. Perhaps if the hon. Member has an opportunity of reading my remarks in the morning in HANSARD they will be clear to him. I am not being sarcastic but I do not think he was here during the greater part of our earlier deliberations today, when there was some suggestion from the Opposition Front Bench that one or two Treasury Ministers were deploring arguments at too great a length. However, if the Committee wishes me to do so I will certainly explain this matter, and I hope it will then be clear.
Under the existing Income Tax law, a United Kingdom company is entitled to deduct Income Tax at the standard rate from dividends which it pays. I am sure that the hon. Member knows that already. If it declares its dividends free of tax the actual net amount received has to be grossed up at the standard rate. That again, I think, is self-evident. That must be done in order to arrive at the amount of the dividend which has to be included in the shareholder's total income for tax purposes. I am sure he knows that as well.
The taxpayer's total income is relevant for the computation of Surtax liability. In other words, the gross amount of the dividend is the amount which, after deduction of tax at the standard rate, equals the net amount

which is actually received. These rules apply even though the company has not paid United Kingdom Income Tax at the full rate because it has received credit for overseas taxes.
Where it has actually paid the overseas taxes, this is quite right. It is right because the aggregate of the rates at which it will be charged both here and in the country overseas will not in any circumstances be less than the United Kingdom standard rate. But where credit is allowed for tax spared overseas—as it can now be under last year's legislation—the result may be wrong because the company may well have paid less tax in total, both overseas and in this country, on its profits than our standard rate of Income Tax.
It would, of course, be anomalous for a company to deduct tax at a rate higher than the aggregate rates at which it had paid tax here and overseas. Moreover, in the other case I referred to in my opening remarks, what I might call the "free of tax" case, grossing up at the full United Kingdom rate would produce an excessive gross amount.
In an extreme case, if a company distributed the whole of its profits to its shareholders, and the amounts received were grossed up at the full standard rate, the aggregate on which Surtax would be chargeable in the case of shareholders would be greater than the whole income of the company. For this reason, we thought it right, on further consideration, to introduce this Clause. At the outset, I made some observations to explain in brief terms what the general purpose is. I hope, having dealt with the matter in stages, that it is now a little clearer.
I had intended, when I first considered this Clause, to deal with it at some length, but then I found that considerable interest had been taken in the matter during the passage of last year's Finance Act, and, as the subject matter was therefore not new and many points had been raised then, I dealt with it rather briefly tonight. I did not intend discourtesy to the Committee.

10.30 p.m.

Mr. Houghton: I am very much obliged to the Economic Secretary for going to all that trouble. To assist him in giving that explanation he had in front of him a sheet of paper and on that


paper was written a full description of the meaning and purpose of this Clause. That description was prepared for him by the Board of Inland Revenue, and it is one of hundred of pages of explanatory memoranda provided by the Board to Treasury Ministers. We see them walking about with big wads of papers under their arms. Those papers are the Inland Revenue briefs on the Finance Bill. There is no secret about this.
Why cannot a memorandum which can be given to the Minister explaining the purpose of the Clause be given to Members of the Committee? If we had such a memorandum in front of us and then did not understand it we should draw on the resources and understanding of the Minister for further verbal explanation. I am sorry to be so insistent about this. I know that I am being a nuisance to hon. and right hon. Members opposite and probably to the Committee as a whole, but someone has got to make a stand on this question of proper facilities for Members of Parliament to do their job.
I make this plea not only on behalf of the Opposition. Hon. Members opposite are in just the same difficulty as we are, and it really is not suitable for us to conduct our business in the House of Commons in 1962 as if we were dealing with the relatively simple legislation of the Income Tax Act of 1842. What was good enough for Gladstone is not good enough for us. I hope that these remarks which I have been making for thirteen years will bear fruit one day. It will be the only monument erected to me for services in the House and I shall be proud of it because it will enable the Committee to do its job with some degree of coherence and intelligence which will facilitate the work of Parliament..
We are proud of this institution. We say that it is a model to the world and we bring adults and school children round it every day of the week. But we sit here bewildered by the complexities of the Clause. [An HON. MEMBER: "Where are the hon. Gentleman's hon. Friends?"] The probability is that my hon. Friends have gone home because they cannot grapple with the complexities of the Bill and because they see no point in sitting here unable to make a contribution. However, I must not

strain your patience a moment longer, Sir William. I have made my protest, and not for the first time..
I see that the Chancellor has taken his seat. Without going over the ground again, I remind him that I am once more asking for assistance to be given to hon. Members on obscure Clauses of the Finance Bill. We had a White Paper on Clauses 9 to 15, and I am sorry that we have not had any detailed explanation prepared for us on this matter.

Mr. Fletcher: I support what my hon. Friend the Member for Sowerby (Mr. Houghton) has said. I feel very strongly about this and my only regret is that the Chancellor did not arrive a few minutes earlier, in time to hear the protest made by my hon. Friend. It is no use hon. Members opposite complaining about thin attendance on either side of the Committee. The reason why there is a thin attendance during the various stages of the Finance Bill is because of the difficulty which hon. Members experience owing to the failure of the Government to present the Bill with a proper Explanatory Memorandum. I hope that the Chancellor will really take note of this. It puts hon. Members in an intolerable position if they have to try to understand complicated Clauses like Clauses 17, 18 and 19 without the facility of a short explanatory statement.
It would have been quite easy for the brief which the Economic Secretary read, though only after a good deal of pressure because, first, he rather apologised for not reading it, to have been made available to hon. Members. The hon. Gentleman seemed to hesitate to read the brief, or only to be prepared to read it if pressed to do so. I beg him to appreciate that it is not only in the interest of hon. Members but of the public generally that explanations of these complicated Clauses should be on record somewhere. It is because of the failure to provide the Committee with such information at an earlier stage that we must insist on it being communicated to the Committee so that it will at least appear in HANSARD. How much better it would have been if we could have been provided with an explanatory statement on this and other Clauses.
Obviously, some Clauses do not lend themselves to explanatory memoranda,


but this bunch of Clauses deals with highly technical amendments to existing legislation and requires explanation in simple language. As my hon. Friend the Member for Sowerby (Mr. Houghton) has said, the briefs are prepared. There is no secret about that. The Minister does not have to pretend to be a genius when he gets up to explain what it is all about. He only reads what has been provided for him and which could equally well have been circulated to the Committee and printed in a White Paper, or in some other form.
It is intolerable that Members should be subjected to this nuisance and inconvenience and delay on having to deal with Finance Bills of this kind. Finance Bills are tedious enough in all conscience and take up a good deal of Parliamentary time, and it is an abuse of the Government's privileged position that they should keep these memoranda up their sleeves until the last minute and then read them out between ten and eleven o'clock, expecting hon. Members to understand them and be able to comment on them and say whether they are right or wrong.
A great deal of Parliamentary time would be saved and a great deal of assistance would be given to those members of the public who are interested in these matters if memoranda of the kind which are made available to the Treasury were made available generally in some printed document for hon. Members before Clauses of this kind were reached. I support my hon. Friend's protest and hope that the Chancellor of the Exchequer will do something about it.

Mr. Mitchison: Agreeing as I do with the protests which have just been made on public grounds, I should like to add my support to the plea on personal grounds.
I run the risk every year of being treated as a witch doctor whose intentions are undoubtedly malevolent and whose knowledge is always exaggerated. I find it as difficult as anybody else to follow the Clauses of these Finance Bills, but people suppose that because I get up and talk about them, I understand them. I usually do not!

Question put and agreed to.

Clause ordered to stand part of the Bill.

Orders of the Day — Clause 19.—(SALES OF BUILDING LAND BY PERSONS ASSOCIATED WITH BUILDER.)

Question proposed, That the Clause stand part of the Bill.

Mr. Millan: I hope that we shall have a short explanation of the Clause, because I find it difficult to understand in particular why subsection (2) has been included. This subsection makes a certain qualification to the kind of land which will be caught by the Clause by saying:
For the purposes of this section land shall be deemed to be acquired in connection with a contract for the erection of a building—
and the next words are the important words—
if that contract is entered into before or on the same day as the contract for the acquisition of the land…
I do not understand why there should be this time qualification. I should have thought that the fact that land was held by a third person—to use the words at the beginning of subsection (1)—associated with the builder ought to have been sufficient to bring it within the terms of the Clause without making this qualification about the time at which the land is acquired.
Subsection (2) seems to mean that if the land is held by a third person associated with the builder before there is any question of building the building which comes within the Clause, there will be no question of tax liability on any profit on the sale of the land. I do not see what the date of the acquisition of the land has to do with the transaction.
If we imagine the circumstances in which a third person associated with the builder already has the land—and I imagine that this will be the most common circumstance—without necessarily having any particular building or any contract for the erection of a building in view, when a contract for the erection of a building on that piece of land comes along, the devices for the avoidance of tax which is meant to be caught by this subsection could equally well be put into operation in those circumstances as they would be in circumstances in which the land is acquired either simultaneously or after the

contract is entered into for the erection of a building.
I do not know whether I am making myself clear about this, but it seems to me that the point of time at which the land is acquired is irrelevant. Provided that the land is held by a third person associated with the builder, this ought to be sufficient to bring it within the purview of the Clause which is meant to deal with tax avoidance devices and not with a legitimate transaction. It is meant to deal with a transaction which is so manipulated as to avoid tax.
In those circumstances, the date of acquisition of the land seems to be irrelevant. There is the builder, the third party associated with the builder holding the land, and the appropriate opportunity comes along to use the land for the erection of a building in contract with some other person. The transaction is put into effect and tax is avoided. What has the date of the acquisition of the land got to do with that?
In most cases the land will be there before the contract is entered into for the erection of the building. Normally one does not contract to erect a building without the land on which to erect it, and therefore this subsection will nullify the intention of the Clause. I hope that the Chief Secretary will deal with this point.
I am not suggesting that there should be retrospective legislation, because even if this qualification in subsection 2 worked there would be no retrospective effect because the retrospective effect would be eliminated in any case by subsection (6). I am not pleading for retrospective legislation in any sense. I am pleading that the Clause should be made effective, and should not have what appears to be a substantial loophole in it. I hope that we shall get some explanation why this provision has been inserted in subsection (2) in a way which I think will nullify the effect of the Clause.

Mr. Brooke: As the hon. Gentleman pointed out, the Clause is intended to deal with a certain type of tax avoidance, and the general case is this, although there are variations of it.
A builder has freehold land and intends to put up buildings on that land


for sale leasehold. If he carried out the operations in a perfectly straightforward way, with no thought of tax avoidance, there would be a taxable profit which would be calculated by reference to the amount of any premium which he obtained for the lease, plus any amount to be brought in because of the freehold reversion. It would be done in a straightforward way and the profit would be taxable.
However, certain clever people have thought of ways of making this profit exempt from tax, or making it virtually impossible for the Revenue to charge tax on the profit. To take a simple case, the builder may take advantage of the fact that the owner of a company and the company itself are, in law, two different persons. He may buy the building sites himself, but transfer his building business to a company. Then arrangements are made whereby the prospective purchasers of the building enter into contracts with the company to put up buildings and with the individual to acquire a lease of the land. The individual is then left with a profit, the profit representing the difference between what the land cost him and the premiums he gets for the lease plus the reversion. His profit comes from the building operation, but in fact it has been found that he retains, at least for a period, the freehold reversion. There is no chance of the Revenue establishing that he is carrying on a trade as dealing in land and therefore he manages to escape tax.
10.45 p.m.
There are variants of this. The customer may divide himself into two people as well as the builder. The hon. Member asked about subsection (2). I am not sure if he appreciated which acquisition of land that refers to. It refers, not to the acquisition of land by the builder, but to the acquisition of land by the customer. Only if the customer acquires land in circumstances set out in subsection (2) is there any question of a tax avoidance device by the landowner associated with the builder. Ingenious people have thought of various ways of using this general device for tax avoidance. I hope that the Committee will be at one in thinking this is the right way to legislate against them.

Mr. Millan: I appreciate the point made by the Chief Secretary, that in line 2 of subsection (1) the acquisition of land is acquisition by the prospective buyer. I suggest that that might be made clearer, because presumably there may be cases in which the builder may buy the land from the third person associated with him. Presumably it is not completely unknown for the builder to acquire the land, it eventually being passed on to the prospective purchaser. In those circumstances, subsection (2) would be a very bad subsection because the date of acquisition by the builder would be completely irrelevant to the tax avoidance device.
There may be some other provision in the 1960 Act or in some other Act which would catch that sort of device. Perhaps the Chief Secretary will look at that aspect. If necessary, this could be amended at another stage of the Bill.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clauses 20 and 21 ordered to stand part of the Bill.

Orders of the Day — Clause 22.—(SMALL ESTATES.)

Question proposed, That the Clause stand part of the Bill.

Mr. Callaghan: We ought not to let this concession pass without acknowledging the assistance it will be to a number of small estates.

Mr. Norman Pannell: On a point of order, Sir William. I wish to speak on Clause 22.

The Chairman: The Question before the Committee is, That Clause 22 stand part of the Bill. The hon. Member will have every opportunity to speak.

Mr. Callaghan: I rose only because I thought that the Chairman was about to put the Question, as indeed he was. I did not see the hon. Member rise.

Mr. Pannell: I did rise.

Mr. Callaghan: Then I am quite willing to give way.

Mr. Pannell: I regret having to detain the Committee at this late hour, and I promise to be brief. This is a subject


on which I have spoken on several occasions. I welcome the concessions that appear in the Clause. I regard them as a belated recognition of the disadvantages that attaches to estates in the payment of Estate Duty by virtue of the fall in the value of money. The rates were fixed in 1949, and since then the £ has fallen in value from 20s. to 13s.—a drop of 35 per cent. The inflated values of the estates have attracted a higher rate of duty, which means that the Exchequer is collecting a far greater sum than was intended when the rates were originally fixed. That argument might also be said to apply to other forms of taxation, but there have been modifications and reductions in Income Tax in recent years, which have reduced the disadvantages due to inflation.
The raising of the exemption rate from £3,000 to £4,000 meets the difficulty that I have mentioned, because estates valued today at £4,000 would have had a value of £3,000 when the limit was raised to that level in 1954. Similarly, the case has been met in regard to estates valued between £4,000 and £6,000. I am concerned principally with estates valued up to £30,000. In most cases the Exchequer is attracting duty at a 50 per cent. higher level than it was when the rates were first fixed.
I will give an extreme example. An estate valued today at £15,000 would have had a value of £9,750 in 1949. Today it attracts duty at 8 per cent., whereas its value of £9,750 would have attracted duty of 4 per cent. in 1949. That means that the Exchequer is collecting 100 per cent. more in duty, in real terms, than it was when the rate was originally fixed.
An estate valued today at £30,000 attracts a rate of 18 per cent.; in 1949, at a value of £19,500, it would have attracted a rate of only 12 per cent. That means that the Exchequer is now extracting 50 per cent. more in duty, in real terms, than it was when the rate was fixed by my right hon. and learned Friend's Socialist predecessor. The disparity is not so great as the estates rise in value, and when we reach the estate valued at £75,000 we find that it now attracts a rate of 40 per cent., as against a rate of 31 per cent. in 1949, when its value would have been £48,750. The difference there is not 50 per cent., but only 25 per cent.
I enter my appeal on behalf of those estates of modest value. I recognise that nothing can be done in this Bill, but I ask my right hon. and learned Friend to consider the case carefully today and to see what he can do on the next occasion. These small estates cannot escape Estate Duty. They are not capable of the same evasion by reason of gifts inter vivos, for the very reason that a person cannot get much benefit from the reduction in duty unless he gives away the whole estate and leaves himself destitute.
The largest estates have suffered least in this respect—those valued at £50,000 and over. I ask my right hon and learned Friend to look into the case that I have put forward and see whether he cannot make more concessions next year, as a matter of simple justice, to those estates of a modest value, up to £30,000.

Mr. Callaghan: I think that "modest" is a relative term. What a strip-teaser would consider modest might not be considered modest in a convent. Whether it is modest or not depends on whether one is a millionaire property-owner or a pensioner from the Civil Service who has been hard hit by inflation over the last ten years. I should have some reservations about what the hon. Gentleman has to say.
I am wholeheartedly in favour of the general purpose of this Clause and I should like to acknowledge the concession which is made. It was well worth while. It is an astonishing thing that no alteration has been made in the exemptions since, I think, 1894, when Sir William Harcourt introduced Estate Duty in its present form, until the late Lord Dalton decided to give a small concession in 1946.

Sir E. Boyle/: There was a small change in 1909.

Mr. Callaghan: I did not know that. I always bow to the knowledge of the Financial Secretary in these matters.

Mr. Mitchison: Under a Liberal Government.

Mr. Callaghan: Under a Liberal Government. Of course, the Limehouse Budget. That was when they were "fighting" Liberals.
Lord Dalton made a concession in 1946. I have been looking up the record


and I find that on that occasion speeches were made by the late Oliver Stanley and Brendan Bracken, my right hon. Friend the Member for Colne Valley (Mr. Glenvil Hall), Lord Dalton, and myself. We had a very interesting debate on that occasion.
I believe that there is something worth while in making this concession to the small estates which is obviously going to cost a little but not much. I believe that the Chancellor is not getting the revenue from the Estate Duty that he could get. I am quite astonished at the failure of revenue raised from Estate Duty and I want to ask the Chancellor whether he has gone into this matter when giving the concession, and if not whether he will do so.
I have some figures which illustrate the position. The increase in the revenue from Estate Duty at the end of the war until 1950 was £80 million. In 1945 the revenue from Estate Duty was £110 million and in 1950 it was £190 million, which represents an increase of £80 million from that source in five years. In the following ten years, from 1950 to 1960 the increase was from £190 million to £262 million; so that the increase in revenue from Estate Duty was £72 million in the last ten years and in the preceding five years it was £80 million. I think that there is something wrong. One has only to consider the degree of inflation which has taken place and the increase in share values which has taken place over the last decade, especially in the last four or five years, which must have inflated the value of estates by very substantial sums.
When the Chancellor is looking for revenue for worthwhile purposes it might be worth while the right hon. and learned Gentleman looking into the reasons for the flattening out in the increase of revenue from this source. I could advance a number of answers. One arises from the action of the Labour Party in 1949 which was designed for an entirely different purpose. I remember that at that time the late Sir Stafford Cripps introduced an Amendment to the Finance Bill in order to reduce the rate on agricultural land from 100 per cent. to, I believe, 55 per cent. His purpose was to help the farmer and those who owned land. But I do not think that

hon. Members opposite will disagree when I say that it has not been used for that purpose at all.
What has developed over the last ten years has been a number of short-term investments in land which were made by people in order to avoid death duties. The land was thereafter sold, when their heirs had had the benefit of the lower rate of duty, and this has had a most deleterious effect on the agricultural system.
11.0 p.m.
It has put up the price of land quite unnecessarily and, as a result, has increased inflation. It has made it more difficult for farmers to farm their own land, and for men to get into farming. That has been the consequence of an Amendment designed for very useful social purposes. It has been misused by people wanting to evade or avoid—I am never quite sure which is the correct term—the payment of Estate Duty. That seems to be a fruitful field for investigation.
We all know the trouble that the Chancellor, and his predecessors, has had about gifts inter vivos, and the use of properties in the hands of discretionary trusts has been another contributory factor to the surprisingly slow growth of revenue from this source. Property settled in trust on a spouse also escapes Estate Duty and, increasingly every year, has, I believe, been used as a means of avoidance. That was not our intention. I do not know whether hon. Gentlemen would gladly connive at it now, but that was not the intention at the time. The only conclusion we can draw is that Estate Duty today is not yielding the revenue it was intended to yield because of evasion measures widely used over the last few years. I mention all this because I know that the Chancellor is always looking for sources of revenue.
There is another startling thing in this connection. In 1951 there were 203 deaths involving estates of a gross value of £200,000. Today, the number is only 269 such deaths. It is quite astonishing, when one considers the degree of inflation that has taken place over the last ten years, that the number of those estates should have increased by only 25 per cent.
What we suffer from is a great veil of statistical darkness. Nobody really knows enough about the facts here. A couple of students, Mr. Lyndall and Mr. Tipping, wrote a book some time ago in which they thought that the distribution of wealth was today less unequal than it was at the end of the war, and certainly less unequal than it was before the war. That was their preliminary conclusion. They thought it not very marked, and said that they had had to make a great number of unsubstantiated guesses to arrive at that conclusion.
Even so, their other conclusion was that the distribution of wealth is much more highly concentrated in the hands of a few here than it is in almost any other country of comparable character. They have reached the conclusion that 1 per cent. of the top people own 43 per cent. of the wealth. Even in the United States they conclude that 1 per cent. of the top people own only 24 per cent. of the wealth—

The Chairman: Order. I am sorry to interrupt the hon. Gentleman, but this Clause deals with small estates, and we seem to be straying to rather large estates.

Mr. Callaghan: That is quite true, Sir William. What I suggest would lead to the creation of more small estates, and if we could create more small estates it would be in line with what the Chancellor is seeking to do, because he seeks to relieve them. I thought that, generally speaking, we were all reaching the same conclusion by different roads, and would get to the same point in the end. However, Sir William, I know that I was stretching your tolerance to breaking point, and I have, broadly, made the points I wanted to make. We do not have enough information about what has been happening to Estate Duty in recent years or about the amount of avoidance that has taken place. But we can reasonably say that, in the absence of further statistical evidence, there has been a lot of avoidance, that the tax could yield more duty if it was properly applied and that it would be worth while if the Chancellor probed into the consequences of the tax to see whether it is fulfilling the purposes he and his predecessors intended when it was first placed on the Statute Book.

Mr. Millan: This is not the appropriate time, in view of your Ruling, Sir William, to have a general debate on Estate Duty, although that might be just as profitable to the Committee as the debate we had the other day on Clause 7 on the subject of Income Tax.
As my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) said, there is considerable dissatisfaction about the working of the Estate Duty and the apparently poor yield we get from it despite the apparently high rates that are applicable. We have exactly the same criticism to make of Estate Duty as was made of the Government's proposals regarding the speculative gains tax—that there is a very high rate of tax but that the yield from it is low because the tax is so framed as to be quite ineffective. It would be better to have a lower rate of tax—the amount is a matter of opinion—which would yield even the present amount than to retain a high rate into which the Government have allowed loopholes to be made, as has happened with the present Estate Duty legislation.
Certainly one welcomes the attempt being made in the Clause, because estates not exceeding £4,000 are quite small with the value of money what it is, and no one would seriously object to them being excluded from Estate Duty altogether. I should have thought that the saving to the Revenue in administrative costs would probably compensate for any loss in this band of income.
Whatever adjustments we may make at the lower rates, the basic criticism still remains. My hon. Friend the Member for Cardiff, South-East mentioned some of the devices by which Estate Duty can be avoided. There is a long catalogue of them and I imagine that any solicitor or taxation accountant could advise a wealthy client how to frustrate the tax effectively. That is a very unhealthy situation.
Regarding gifts inter vivos, far from tightening up on these the Government have—they did so two years ago, I think—loosened the provisions so that gifts made in the third, fourth and fifth year before death bear a lower rate of duty than they had previously done. That was a step in the wrong direction, for I believe that we should have a gifts tax. Actually, once one accepts the


principle of taxing gifts inter vivos there is nothing logically against the principle of having a gifts tax.
I see, Sir William, that your glances towards me are meant to indicate that I am straying from the point. Since I am in danger of getting out of order, I will only add that it would be useful to debate Estate Duty in full. Unfortunately, we do not often get an opportunity to discuss this matter. At least we shall have these remarks on the record. Estate Duty raises wide issues and needs to be dealt with in detail. It has been described on many occasions as being almost to mean a voluntary tax and, that being so, it is a scandalous piece of our taxation system. The Government ought to take this matter in hand. I might say that it would be one of the first things to be introduced in a Finance Bill by a Labour Government.

Sir E. Boyle: I should welcome a full-scale debate on Estate Duty at an appropriate time but must content myself tonight with a few comments on this Clause of the Bill. If the hon. Member for Cardiff. South-East (Mr. Callaghan) wants to know more about the Finance Bill of 1909 I can only suggest that he has his hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) behind him and he is better informed about this than perhaps any of us, as anyone who has read the book, "Mr. Balfour's Poodle" will know.
This Clause merits, I think, a little attention. For one thing, this is the first occasion since Estate Duty was introduced in 1894 that estates between £3,000 and £4,000 have been exempt from this duty. It will free an additional 18,000 estates from duty each year. But we also have to consider what the Clause does for estates above the limit. A further 20,000 in the £4,000 to £6,000 range will benefit from the reduction. Raising the limit from £3,000 to £4,000 will mean that 23 per cent. of all the estates at present paying duty, or likely to pay duty, will be exempted, while something like another 26 per cent. will benefit, thanks to the reduction in rates in the £4,000 to £6,000 range. This is quite considerable.
I certainly regard this as one of the more valuable Clauses in this Bill from the point of view of the ordinary tax-

payer, but I cannot answer at length all the points which have been raised by hon. Members. Perhaps I may make one or two comments generally about the Clause. The cost of this relief will be about £1 million this year, and £1,750,000 in a full year.
It will not have escaped the attention of hon. Members that we are making provision in another Clause of the Bill for tightening up on Estate Duty. I must not anticipate future Clauses, but later on in this part of the Bill it will be seen that we are making full provision to cover this Clause now before us, and more, and that seems to me to represent a very reasonable exchange.
The hon. Member for Cardiff, South-East also said that he would like to see more done for what he called the small estates. I do not think we should underrate the benefits which many millions of small property owners have derived from what we have done over the past ten years. Not only have we now more house owners, but also many more people owning tangible property of various kinds. I am talking only of small estates. Ten years ago, something like half of our population, so it was estimated, owned property to the value of £100 or below. I am quite sure that that figure is out of date today. There has been a very large increase in the ownership of property by people of modest means over the last ten years. It was before then that the late Lord Dalton took action on this duty and we should not under-rate the fact that his Budget which substantially increased Estate Duty was presented as long as sixteen years, or almost a full generation, ago. So that the effect of his higher rates are now making themselves felt. But I will say no more now on that or I shall be out of order.

Mr. Callaghan: I wish only to interrupt to say that the late Lord Dalton's name ought to be remembered. His reputation suffers unfairly in a number of matters but we feel that, where credit is due, it should be paid. The Financial Secretary makes a modest boast that he is relieving 23 per cent. of the smallest estates—the smallest in the context in which we are speaking—from Estate Duty, but in the Budget of sixteen years ago my late right hon. Friend took 150,000 estates out of duty altogether.
11.15 p.m.
I note what the Financial Secretary said about the help that has been given to small estates in the last ten years. I do not want to bore the Committee with personal experiences. I will merely say that it so happens that twelve years ago I borrowed some money in order to buy a house and I paid 3¾ per cent. for it. Today I am having to pay 7 per cent. for it, and on the same capital sum instead of paying about £125 I am paying about £225. I am not very grateful to the Financial Secretary for the help that he has given. In addition, I have had substantial rerating, and many other benefits are conferred upon me and the society which has "never had it so good."

Question put and agreed to.

Clause ordered to stand part of the Bill.

Orders of the Day — Clause 23.—(PROPERTY SITUATE OUT OF GREAT BRITAIN.)

Mr. Marcus Kimball: I beg to move, in page 35, line 45, at the end to insert:
Provided that, in the case of any person so dying, this subsection shall not have effect in respect of any property situated out of Great Britain in which such person was entitled to a beneficial interest in possession prior to the tenth day of April nineteen hundred and sixty-two.
The effect of this Amendment is to provide that anybody who held foreign real property before 10th April this year would not be liable to pay death duty on it. Hon. Members opposite will remember that it was their Government in 1949 which re-enacted the provision, in Section 28 (2) of the Finance Act of that year, under which foreign real property held by residents in the United Kingdom would not be subject to death duty.
People who have bought foreign real property have done nothing that was without the law. Many of them have bought it in order to help the Commonwealth and, in fact, as I said on Second Reading, many Commonwealth Governments have found it necessary to reduce their own death duty in order to encourage people in this country to leave their investments in the Commonwealth.
I think that the Chancellor was a little harsh when he introduced this part of

his Budget because he used the word "avoidance." There is no avoidance in this. It is, in fact, straight, wise and sensible investment. I would remind the Committee of a famous judgment given by Lord Atkin, who said:
It has to be recognised that the subject, whether poor and humble, or wealthy and noble, has a legal right so to dispose of his capital and income as to attract to himself the least amount of tax.
The Inland Revenue is never slaw to take advantage of every single power that it has got in order to extract the maximum amount of tax from any individual taxpayer's pocket. So people who have invested in foreign real property have done so as a wise and sensible move to mitigate the amount of tax which they have to pay, in order to help the Commonwealth and in many ways to bring back to this country, through the investment in property abroad, very large sums of money for foreign exchange which is badly needed.
I do not wish at this late hour to delay the Committee by repeating any of the arguments which have already been adduced on Second Reading. I should, however, like to add two points which were not mentioned on that occasion. First, on the question of valuations of foreign real property, is the British Treasury going to accept for death duty purposes the valuation of, say, a valuer in the Bahamas? We have seen some blatant advertisements at the back of Country Life advertising property in the Bahamas. I can visualise advertisements inviting people to leave their money in the Bahamas. The British Treasury will not have British valuation officers in every one of these countries.
In addition to that point, I would mention one other on the question of accountability. In this country an executor pays death duty before he can get probate. Under the laws of many of these foreign countries, and Commonweath countries, the property does not pass to the executors. It passes straight to the heirs. So the executors will be forced to pay a bill for Estate Duty when they do not own the assets.
The very large number of my hon. Friends who have turned up at this late hour shows that there is an immense amount of feeling on this side of the Committee about the gross inequity of this move by the Chancellor. But we do


not want to delay the Committee, and if we are told something about this perhaps being looked at again before Report, I am certain that none of them will delay the Committee.
I ask my right hon. and learned Friend to bear in mind that even the United States Government have found it necessary to make some very considerable concessions on bringing in just this sort of tax, and I hope that we may have some favourable or encouraging noises from my right hon and learned Friend.

Dr. Alan Glyn: I support my hon. Friend the Member for Gainsborough (Mr. Kimball), who put the case very briefly. I should like to add just a few points.
First, it was in very good faith that many people after the war invested money overseas and in the Commonwealth in a genuine endeavour to replace those assets which were sold during the war in the national interest. It is extremely hard that they should now be penalised by any form of retrospective taxation. My point is that we axe departing from a very real and important principle here in that we are taxing something which is outside our jurisdiction and which in many cases is under the sovereignty of another nation. This point brings about very real practical difficulties.
First of all, there is the difficulty of the assessment of the value. I would merely cite the case of land in Kenya. It may have a certain value today, but it is extremely difficult to sell, and it is almost impossible to put any real value on it because it is not a movable property, and it is also extremely difficult to negotiate. I am convinced that the Treasury is equally incapable of placing a figure for death duty purposes on an asset of that nature. On that subject, are death duties to be paid out of sterling in this country or will the Government compel them to be paid out of assets in the country where the property lies?
Another difficult problem is that the laws of the country in which the property is situated are often very different in respect of inheritance. For instance, in France property may well not pass to the person to whom it has been left

under a British will but will, under French law, be divided among certain beneficiaries. There may be a very real problem in respect of death duties. Part of such an estate may have to be distributed in France and part in this country. In France a man who leaves his property to the dogs' home cannot cut out this issue, and his issue has a claim in law in the country in which the property is situated. That will give rise to very real difficulties in assessing the value of the death duties to be paid.
I should have thought it would have been very much easier if the tax had been so devised that it should not be payable until the funds from the property abroad were remitted to this country, and then death duties should be paid on the remitted funds and not on the property which lies outside our jurisdiction.

Mr. William Roots: I hope that the Attorney-General will deal with something which seems to me to be of great importance.
Section 28 of the Finance Act, 1949, gave a specific exemption—it was not just a loophole—to immovable property abroad, and this to some extent, I suppose, encouraged people to invest in that way. To alter the position out of hand at a time when, in many parts of the world, the property investment situation is extremely difficult, is unfair. When one remembers that the Finance Act, 1949, was passed by the Labour Government—and one has never detected any desire among hon. Members opposite to mitigate any form of estate duty—it seems that some period during which this alternation would take effect is justified.
Everybody knows that there have been abuses, and I do not think anybody would object to those which have taken advantage of the position to an extent which was virtually dishonest—at any rate, in my view—being caught. But I cannot believe that it is impossible to devise a provision which would at least enable genuine investors to rearrange their affairs in accordance with this new proposal.
It is clear that the worst offenders, in terms of tax evasion, are those who seek to purchase property abroad when death is almost upon them. Therefore,


to draw a line at which these provisions are to come into force, or to introduce a sliding scale, seems clearly justified in view of the fact that the House stated a specific exemption for this form of investment. But it is unfair, having induced people to take a certain line, to alter that line out of hand. Had there not been specific encouragement by the House, the position might have been different. I do not think that the ordinary argument of retrospection does apply, but having set up the system as it was set up in 1949, it does not seem right to alter it out of hand.

Mr. Roy Jenkins: Perhaps I may respond to the extremely courteous remarks of the Financial Secretary about my knowledge of the Budget of 1909 by endeavouring to give support to the Government on this aspect of the Budget of 1962. I hope that it will be helpful, for I trust that they will not give way on this Amendment.
It may be the case, as one has been told since the Budget proposals were announced, that there is strong feeling on the benches opposite about this, but if so, I hope that it is based on something more substantial than the arguments deployed in this debate so far. I know that the hon. Member for Gains-borough (Mr. Kimball) was endeavouring to be as speedy as he could, and we are grateful to him for it, but he did not make out a substantial case. Indeed, it was rather a contradictory one.
At times he tried to say that this investment overseas was carried out as a straight, sensible commercial investment. If that were so, there is no real complaint about putting it on the same basis as investment made at home. The only conceivable case in which there might be ground for saying that people were being unfairly treated would be if the investment had been made on unsound commercial grounds in the absence of a particular exemption.

Mr. Kimball: We discussed this at length on Second Reading. There is immense political risk overseas but none in this country—unless there is a danger of a Socialist Government.

Mr. Jenkins: That may be so, but there are risks in all sorts of investment

and that is something investors have to take into account in deciding what is and what is not a sensible investment. The hon. Gentleman said that these were sound, sensible, commercial investments. That phrase embraces the political risks which may or may not be involved. Does he or does he not mean that most investment of this sort has been undertaken only because of the provision in the Finance Act of 1949 and that otherwise it would not have been undertaken? If that is so, it is clearly not in any sense tax evasion but tax avoidance. It is an investment made solely because by making it one escapes death duties whereas if one makes investments in other forms one does not.
11.30 p.m.
What we have to consider is whether this is a sensible way of organising one's death duty provision or whether the benefits which flow from it are for the benefit of the country as a whole. I do not believe that this would be so. I do not think that retrospection in the normal sense of the word is involved in this. The hon. and learned Member for Kensington, South (Mr. Roots) was clear about this point. To say that it was retrospective legislation would be to say that we could never close a death duty loophole. Is it really the case that we ought in perpetuity to give a special death duty concession for property overseas to anyone able to make such an investment, to transfer capital out of this country in a way which would not be done were it not for this concession?
I do not think that most of the investment made overseas and which will be affected by the Clause is going to provide aid to under-developed areas in any sense of the word. Most real property investment in parts of the West Indies and in the Commonwealth has not been made in the under-developed areas. There has been a great deal of British investment in Manhattan in the last few years which can hardly be described as an under-developed area.

Mr. David James: Will the hon. Gentleman explain, in that case, what precisely he believes Sir Stafford Cripps had in mind when he made this concession?

Mr. Jenkins: That is not part of my purpose this evening. I have no idea


what Sir Stafford Cripps had in mind at the time—one would possibly find out what he had in mind by studying the debates of 1949 carefully—but in 1962 I do not take the backward looking view that what happened in 1949, or in any other year, is necessarily the complete answer to what we ought to do in the future. It may be that Sir Stafford, like other Chancellors, made certain mistakes. I have no objection to having a new look if it is what we want to do in the future. I am quite clear that one does not wish artificially to encourage investment outside this country which would not be made on sound commercial grounds.
On the whole, we have been too starved of capital in this country and have overburdened ourselves by pushing capital outside the country. I certainly wish to give no artificial stimulus in this direction. I also echo very strongly the remarks made by my hon. Friend the Member for Glasgow, Craigton (Mr. Millan) on the previous Clause that if we are to have a death duty let us have it broad-based with rather lower rates than at present. Do not let us have in this field as in so many others a high rate of tax founded on a narrow basis. This is a desirable proposal to broaden the tax basis as far as Estate Duty is concerned and one which I hope the Committee will accept.

Mr. John Diamond: I wish to support this Amendment for two reasons which I am sure will appeal to hon. Members opposite. Of course, the Amendment does not deal with the Question of whether or not the law should be altered. The Amendment deals with only a very limited point—the decision to alter the law having been taken, whether it should take effect from a given date or not until a later date. All those who are aware of the circumstances of Estate Duty avoidance know that Estate Duty on property can be avoided for only about ninety years ahead and that the great bore about Estate Duty avoidance schemes is that one cannot guarantee that the Government of the day will play the game and allow Estate Duty to be avoided on all the deaths occurring during those ninety years because they have not that sense of fairness and may come along and

alter the law. If they alter the law, all these beautiful Estate Duty avoidance schemes go by the board because the Government of the day have the right to alter the law as they think fit.
Anybody who believes that Estate Duty avoidance schemes should continue unharmed and undamaged as they have been for the last vast number of years, so that they have the effect that nobody other than an untrusting father needs to pay Estate Duty, and anybody who believes that Estate Duty should continue to be so organised that one should be saved from the necessity of wondering whether in any particular year, 5, 10 or 15 years ahead, the Government might decide to alter it, will support an Amendment of this kind which secures for all time to Estate Duty avoiders peace of mind and freedom from Estate Duty.
The other reason is that an Amendment of this kind supports enterprise of the kind of which I have an example in my hand. This is an advertisement from The Timesof 1st March, 1961, and is headed:
Reduce United Kingdom Estate Duty by buying Nassau (Bahamas) leasehold property.
It goes on to show a very attractive block of flats and proceeds to give all the details and, in terms of welcome enterprise, says:
To allow persons securing one or more flats an opportunity of seeing their investment, we will undertake to pay all reasonable expenses for a purchaser or his representative to visit Nassau.
This is a very enterprising advertisement. Not only can Estate Duty be saved, but it can be saved in a most pleasant way by a tax-free, Estate Duty-free, paid holiday to the Bahamas in a way which, I imagine, is more attractive than going on most of the Parliamentary delegations which, after all, are only paid for—there is no saving in tax and there is no saving in Estate Duty.
I am sure, therefore, for those valid reasons of perpetuating the right to avoid Estate Duty for all time, that this Amendment should be supported.

The Attorney-General: My hon. Friend the Member for Gainsborough (Mr. Kimball) raised this subject on Second Reading and I replied to him fairly fully on that occasion. He has not repeated those arguments tonight


and I do not propose to repeat at length any of the arguments which I deployed then. He based his case tonight on the ground that the Finance Act, 1949, provided for exemption from Estate Duty for foreign immovables. My hon. Friend called that a concession. In fact it was nothing of the sort. It made no change in the law. In the 1949 legislation there was no more than a restatement and continuation of an exemption which had dated since 1894, and that restatement was necessary because of the abolition in that Finance Act of legacy and succession duties. I think that that ought to be made quite clear, because on that ground my hon. and learned Friend the Member for Kensington, South (Mr. Roots) also sought to base an argument.
My hon. Friend also said that the people who were investing in immovables abroad were doing nothing without the law, and that there was no avoidance in this. I agree that they were doing nothing outside the law, but I think that no one who heard the facts deployed during the Second Reading debate could fail to recognise that there is a serious leakage here—I do not think that "abuse" would be too strong a word to use.
The hon. Member for Gloucester (Mr. Diamond) referred to one advertisement. During the Second Reading debate I referred to others, and it is the case that about £14 million has been invested in Jersey mortgages of 1 to 3 per cent. Even last Monday there appeared this advertisement in The Times:
Estate Duty. Jersey Land Mortgages are still good for the saving of Estate Duty in respect of deaths occurring before the Finance Bill is passed in two months' time.
We have available up to £250,000 of mortgages in lots of £10,000 each or less. FOR IMMEDIATE SALE. COMPLETION WITHIN 24 HOURS. Title in each case has been approved by Jersey Solicitor and property inspected by us.
I do not think that anyone seriously disputes that that kind of thing has to be stopped, and of course the Amendment would not stop that kind of thing at all.
It may be that a lot of investment overseas was wise and sensible, but my right hon. and learned Friend and I are of the opinion that this has to be stopped, and if we tackle that situation there then arises the question whether it

really is logical or justifiable, when movables abroad are subject to Estate Duty, to let the exemptions for immovables remain.
I have listened anxiously for any argument which would justify the continuation of this illogicality. I know that it has existed for a long time, but I find it difficult to find any grounds for defending its continuance. Even if it were desirable to continue the exemptions for certain categories of persons, it would be very difficult to distinguish—indeed, I can see no way of doing it—between those who have invested for what my hon. Friend would regard as good motives, arid those who have invested for the purpose of avoidance of Estate Duty. There may be cases at one end of the scale, and others at the other end, but in between there will be cases where consideration of the tax avoidance factor has no doubt played its part.
Having listened to my hon. Friend on two occasions, I do not feel convinced by his arguments, and I must advise the Committee to reject this Amendment, operating as it would for the benefit of those who have invested in Jersey mortgages as well as those who have invested for motives which cannot be criticised.
My hon. Friend asked me two questions. One was about valuations. It does not primarily arise on this Clause, and all I can say is that the Revenue would require to be satisfied that the value of the overseas property had been assessed as accurately as possible. The valuation might be very low in some territories and high in others.
Provision is made in the Bill for col. lection of Estate Duty not only from executors but also from beneficiaries and others. If my hon. Friend looks at the last few words of subsection (2) he will see that provision is made for that.
11.45 p.m.
My hon. Friend said that if I could make encouraging noises promising to look at this proposal with a favourable eye beween now and Report, that would satisfy him at this hour of the night. I always dislike disagreeing with any of my hon. Friends, but I have to tell him and those who share his view about this that we have looked at this very carefully indeed, both before the introduction of the Budget and the Finance Bill


and since the Second Reading of the Bill. I do not want him to think that we have shut our minds to all further arguments that may be advanced, but at the same time I do not wish to hold out any hope of making any amendment to this Bill which would satisfy the point of view he and his hon. Friends have expressed.
I say that straight away, but, if it will comfort him at all, there is one particular case which it may be desirable—I say "may be"—that we should meet. I just draw attention to this. When we dealt some years ago with gifts inter vivos there was a departure from the general rule—the hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) will remember this—so that liability did not occur for gifts inter vivos made within the five-year period before the Act came into force. The reason was that it might well be that the person Who received the gift might have spent it before any liability for Estate Duty arose in consequence of the death of the donor within the five-year period. It is conceivable—I cannot put it higher than that—that one might get a case here where there had been a transfer of immovable property abroad to a donee and the sale by the donee of that property and expenditure of that money or the creation of a settlement with that money so that that money would no longer be under his control. In such a case it might be advisable and right to make a similar exemption in relation to the death which occurred within the five-year period where, of course, the transfer takes place before the passage of this Finance Bill and the death takes place after it.
The same point might arise in regard to settlements. If it will be any comfort to my hon. Friend and his friends, I say that we shall give this point serious consideration between now and Report and, if we hink this is a case—it is very unlikely that there will be many of them—Which should be met, we shall not hesitate to meet it.

Sir Cyril Black: Before my right hon and learned Friend concludes his reply, could he deal with two interesting points, one of Which arises from what he has said?
He spoke of accountability of the proceeds of the real property overseas and the possibility of it being recovered from the person who received it and not from the executors. How would that operate in the case of a United Kingdom citizen owning property overseas, willing that property to someone not a resident of the United Kingdom but living outside the jurisdiction of the courts here who had received the property direct so that it never came into the hands of the executors? Could the executors in this country in those circumstances be liable to pay Estate Duty on property which never passed into their control, which could not pass into their control and over which at no point could they exercise any control?
My second point is this: what is the position where there are local regulations in the territory in which the property is situated which prevent the repatriation of the money arising from the sale of the real property? I take the example of South Africa—now outside the Commonwealth. I believe that it is not possible to repatriate a capital sum in conditions of that kind. Let us suppose that a United Kingdom citizen owns real property in South Africa; he dies; the property is realised, and the money is available in a bank in South Africa but cannot be repatriated to this country owing to currency restrictions. Can the executors, notwithstanding, be required to pay Estate Duty out of funds in this country?

The Attorney-General: My hon. Friend has raised two interesting points. They do not arise out of the Amendment, but I will do my best to answer them. I first draw his attention to subsection (2). Perhaps I should point out that this provision applies also to foreign movables as well as to foreign immovables, because difficulty has been experienced in collecting duty on property abroad where the executors in this country had no control over that property—for instance, where it is in the hands of separate foreign executors who are themselves outside this country.
Under the provisions of the subsection the Inland Revenue will be able to require the payment of duty on foreign property from either the executor or the beneficiary and to enforce the liability


against any assets brought to this country which represent the dutiable property.
The subsection in question provides that the executor shall be accountable for the duty on all foreign property, both movable and immovable, of which the deceased was competent to dispose, and to meet the possibility that the English executor might not be entrusted with the administration of the foreign property and might not have sufficient funds in his hands to pay duty on that foreign property his liability is restricted to the assets that he has received as executor. The trustees and beneficiaries are also liable for the duty on the foreign property. That answers the greater part of the question my hon. Friend put about the liability of executors and beneficiaries.
My hon. Friend also raised the question of the situation with regard to the transfer of money from South Africa to this country, where the transfer might be prohibited. As I understand the position.. at this late hour of the night, the executor would not be liable because the money would not come to his hands, but I shall write to my hon. Friend on those detailed points if he wants me to do so. It is difficult to answer these detailed points when they are put to me with so little notice at this time of night.

Mr. Houghton: Earlier in the day we were defending the interests of the property-owning democracy; I suppose that we are now defending the interests of the property-owning aristocracy. I feel sure that some hon. Members opposite would have an interest to declare in this matter. We would probably agree that this overseas investment has been used for more than ordinary commercial purposes. In the world today there are what President Kennedy has described as "tax havens", and many American as well as British citizens have gone to them.
Hon. Members on this side of the Committee cannot say that the Government are wrong in their proposals in the Clause. We have difficulty in supporting the Amendment, because, as my hon. Friend the Member for Gloucester (Mr. Diamond) pointed out, it would mean that investments made in this way

before the appointed day would escape Estate Duty for the length of the life of those who made them and thus benefit could endure for many years to come.
I think that there is always a problem in changing the law when people have done certain things in the circumstances of the law as it was and find that the ground is, so to speak, swept from under their feet. I well remember the case to which the Attorney-General has referred. It was the case of the vanishing horse. A donor had given away a valuable race horse, and first the race horse died and then the donor died; and the value of the race horse had to be brought back into the estate for death duty purposes since it had been given away within a brief period before the death of the donor. But, of course, there was no horse, and therefore there was no gift to realise in the hands of the donee. It all seemed very hard indeed if the donee had to make good the loss of the horse.
We were all greatly moved by this double tragedy of the death of the horse and the donor, and I think that the Chancellor agreed that in such circumstances there should be relief from the Estate Duty which otherwise would be payable. This case is not on all fours with that. But the only practical point I wish to make relates to the notice to be given when the law is changed as it is proposed. One could say that all living persons concerned can theoretically rearrange their affairs to take note of the change in the law. But the interval between the announcement of this proposed change on Budget day and the effective date of the change, which is the date of the passing of the Bill into law, is relatively short and does not give people enough time to rearrange their affairs. It seems to me that it is not entirely fair to catch people, as it were, on the hop, and that they should be given time to disengage themselves from any commitment which they may not wish to continue in view of the change in the law. I am not going into any question of motive. I think that fair notice is a reasonable suggestion to make and I do not think that any harm would be done if reasonable notice were given.
In earlier Clauses we have dealt with gains which have been secured within a brief time which will be taxable and


which in the longer term will not be taxable. Everyone knows where they are. We have not gone back over the past. Any person making a new investment knows exactly how he stands. Anyone who makes an investment before the appointed day, in that case at all events, gets caught by the new tax. But the period of realisation is so short in the case of capital gains that there is no almost indefinite exemption given in a manner similar to that of Estate Duty. I was a little puzzled by what the Attorney-General read out. I may be very dense at this hour, but I was not quite sure what advantage there was in rushing into these mortgages in the Channel Islands before this Measure is passed. Will they not be liable to Estate Duty if they die? Can the right hon. and learned Gentleman enlighten me?

12 m.

The Attorney-General: Yes, if they died before the passage of the Finance Bill there would be a benefit.

Mr. Houghton: So this is an advertisement to a dying man? The things that people think of! Fancy dying men worrying themselves to death over getting into the Channel Islands before they leave this mortal coil.
I accept that, but are there all that number of people who are about to die and have money to invest in the Channel Islands. I do not think there will be many replies to that advertisement—and, in any case, who likes to think that he will die within twenty-four hours? One cannot do this thing without instructing one's solicitors. The solicitors cannot do it behind one's back, can they, and say, "He's going to die in twenty-four hours; let's do some investing for him"—

Mr. Diamond: My hon. Friend must be aware, as, I should think, every hon. Member is, that with any number of people who get an illness from which they suspect they may not recover, one of the first things they do, after calling in the doctor, is to call in the solicitor—[Laughter.]—no, quite seriously—and arrange their affairs; a very understandable, and sensible and almost unanimous practice. It would make a substantial difference if, in such a case, the solicitor were aware of the circumstances, and

were to say to his client, "This is something you can deal with immediately, on the spot"—which is something that most beneficiaries would want—immediately on the spot; beneficiaries are generally there in attendance.

Mr. Houghton: I am much obliged to my hon. Friend. I see quite clearly now that those who are alive and kicking are not interested in that particular advertisement. I remember the case of a noble Lord who went out to chop down a tree. It would have made all the difference if he had signed a document before he went out.
Is there any harm in suggesting that a reasonable period of notice of this operation should be given. Presumably, people who die in the meantime would get some benefit. It would be fair to everyone to say "We shall change the law, and you have a reasonable time in which to rearrange your affairs, if you wish to." That is the only suggestion I make. I do not think that there is very much sympathy to be spent on the number of people who have embarked on this means of Estate Duty avoidance. On this side, we are nothing if not fair, even when dealing with rich men.

The Attorney-General: I will say to the hon. Gentleman that I like his interest in giving what he calls a reasonable time for arranging affairs, but I do not know what he contemplates about the kind of arrangement that could be made. I should have been interested had he elaborated that a little. Was he contemplating an arrangement that would preserve the present exemptions from Estate Duty? Here, we are dealing with immovable land overseas. Movables overseas are liable to Estate Duty, and all property in this country is liable to Estate Duty, but I am rather interested to think what kind of arrangement of affairs the hon. Gentleman was contemplating.
Quite apart from that, may I put this to him? Except for those who will, unfortunately, die on the day when the Finance Bill becomes an Act, it is not the case that the time for making arrangements is limited to the period between the announcement in the Budget and the passage of the Finance Bill. There is the time between the


announcement and the time death occurs in which any changes can be made. That period will vary according to the individuals. I was interested by the idea but I find some practical difficulties with regard to it and when one bears in mind the magnitude of the figures—£14 million or so in mortgages for Jersey alone at such low rates of interest—one realises that Estate Duty avoidance must have featured largely in the transactions.
When one bears in mind the advertisements from Nassau and the Bahamas I think that my right hon. and learned Friend would have found it very difficult to have extended the period of exemption so that those effecting these transactions at 24 or 48 hours' notice would have continued to enjoy exemption from liability for a longer period.

Mr. Houghton: I had no more in mind than putting a forward date to the change. After all, there is a forward change already—from the date of the passing of the Bill. If the date of 1st January, 1963, were given as the date for the change everyone would have notice that the change was going to take place on that date. If they wished to dispose of their assets in overseas countries in the meantime and bring the money back home—or do whatever else they wished to do with it—they would be aware of what they are doing and have reasonable time in which to do it. They would know that if they decided to keen their overseas assets after that date, they would be liable to Estate Duty under the Clause. It is as simple as that and I was simply trying to be helpful.

Mr. Roots: My right hon. and learned Friend has drawn attention to how tender is his heart in these matters. He has drawn the attention of the Committee to the way the Clause, before the passing of the Bill, is encouraging a terrible wave of deaths among those who may have invested in Jersey mortgages. Had he accepted the Amendment, which places the date from 10th April, this terrible wave of deaths might have been avoided. Would not that have been of some assistance?

Mr. Kimball: In view of the limited concessions my right hon. and learned Friend has promised—

Mr. David James: It would seem that they are of advantage only to the spendthrift and not to the prudent man.

Mr. Kimball: —Or they could be of advantage when the asset has been put into a marriage settlement or has been spent. My right hon. and learned Friend has given two very real concessions and I am grateful to him. In view of that, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. W. Clark: I beg to move, in page 35, line 45, at the end to insert:
Provided that in the case of any person dying after the tenth day of April, one thousand, nine hundred and sixty-two, the subsection shall not have effect in respect of any property situated out of Great Britain in which such person had a beneficial interest in possession for five years or more prior to date of death. The principal value of such property shall be reduced for Estate Duty purposes—

(a) by 15 per cent. thereof if the death takes place in the third year after acquisition of the beneficial interest;
(b) by 30 per cent. thereof if the death takes place in the fourth year after acquisition of the beneficial interest; and
(c) by 60 per cent. thereof if the death takes place in the fifth year after acquisition of the beneficial interest.

The Chairman (Sir William Anstruther-Gray): I think it will be for the convenience of the Committee if we discuss with this Amendment, the following.
In page 35, line 45, at end insert:
Provided that, in the case of any person so dying, this subsection shall not have effect in relation to any immovable property situate outside Great Britain acquired by any such person as a devisee or legatee or on an intestacy or other devolution on death.
In page 35, line 45, at end insert:
Provided that, in the case of any person so dying, this subsection shall have effect so that where any immovable property situate outside Great Britain passes or is deemed to pass on his death (estate duty not being chargeable on the property apart from this subsection) the principal value of the property shall be reduced for estate duty purposes—

(a) by 25 per cent. in the case of such immovable property purchased or acquired more than five but less than ten years prior to the death of the deceased;
(b) by 50 per cent. in the case of any such immovable property purchased or acquired more than ten but less than fifteen years prior to the death of the deceased;
(c) by 75 per cent. in the case of any such immovable property purchased or


acquired more than fifteen but less than twenty years prior to the death of the deceased; and
(d) by 100 per cent. in the case of any such immovable property purchased or acquired more than twenty years prior to the death of the deceased.
In page 37, line 13, at end add:
(7) For the purposes of calculating any reduction of the principal value of the property passing or deemed to pass, the reductions (if any) allowable under the proviso to subsection (1) of this section shall be taken into account before any account is taken of any reduction in the principal value allowable under section sixty-four of the Finance Act, 1960.

Mr. Clark: That will be satisfactory. As the Committee knows, this Amendment is closely allied to the previous one and it is not necessary for me, therefore, to recanvass all the arguments. My right hon. and learned Friend has drawn attention to the fact that this exemption from death duty on overseas assets has been in existence since 1894. It was reaffirmed during the Socialist regime from 1945 to 1951, and I am certain that all hon. Members will agree that it has had a tremendous effect on investment, particularly in the underdeveloped countries.
Obviously people invest overseas in the hope of getting some sort of return. But that investment must be conditioned, I feel certain, by the concession that the investor knows he will get regarding death duty. My hon. Friend the Member for Gainsborough (Mr. Kimball), who moved the last Amendment, knows that I did not agree with that Amendment and I am glad that my right hon. and learned Friend has resisted it. The hon. Member for Gainsborough knows that, to my mind, his Amendment would have created two classes of property overseas—those purchased before 10th April, which would not have been caught, and those purchased after that date, which would have been. It is rather the attitude of "I'm in the right boat, Jack", and that does not make for very good law so far as Estate Duty is concerned.
I would remind my right hon. and learned Friend the Attorney-General that in the Conservative Party manifesto at the last General Election what we might call one of our "planks" was the promise that we would do all we could to help the under-developed countries. I

should like, incidentally, to hear what the Colonial Secretary and the Secretary for Commonwealth Relations have to say about this point, but if we are to help those countries we should remember what effect withdrawal of this concession for Estate Duty purposes will have on investment overseas. We say that it will have a deleterious effect.
There has been in the past quite a lot of talk about tax avoidance in this matter of overseas investment. I would remind the Committee that The Times dealt with the matter in a leading article on 15th May, pointing out that the Chancellor was in a dilemma. The argument was that, on the one hand, here was a concession which was desirable so far as the under-developed countries were concerned while, on the other, some people were "getting away with it" simply by investing abroad merely to escape Estate Duty.
I ask my right hon. and learned Friend to consider the Amendment which, in brief, brings these overseas investments within the purview of the legislative governing gifts inter vivos. I think that the hon. Member for Sowerby (Mr. D. Houghton) had a very good point when he said that some sort of notice should be given to the taxpayer that the concession is to be withdrawn. The hon. Gentleman suggests 1st January, 1963, but if such notice were given, there would be such a rush to sell overseas property. We must remember that people who invest overseas take a tremendous political risk nowadays. We have seen that fact amply demonstrated even in the last two years. I should say that I have no vested interest in this because I own no property of any sort abroad and it is a quite sincere point of view, but there is a political risk, and we do not want to discourage genuine investors.
I hope that my right hon. and learned Friend will look at this. Our Amendment states that if an investor has held his property for more than five years he shall be outside the duty provisions; and then there follows a scale, whereby the value of the property shall be reduced by 15 per cent. if death occurs in the third year after acquisition, 30 per cent. if in the fourth year, and 60 per cent. if in the fifth year after acquisition. In short, our Amendment is on all fours


with the rules governing gifts inter vivos made in this country. We have a bad precedent in that people, just before death, have made gifts in order to avoid paying the duty, but this has been tackled so far as this country is concerned and my hon. Friends and myself cannot see why it cannot be extended to cover overseas investments.
It may be that the Chancellor does not like the idea of the sliding scale for the third, fourth, and fifth years but if he does not, I am sure that we should be willing to compromise on the time limits. The point is that here is a definite breach to which we must attend. We must encourage people to invest overseas but let us catch the tax avoiders. For goodness sake do not penalise the true and genuine investors. I hope that the Government will give consideration to this Amendment.

12.15 a.m.

Mr. Michael Coulson: My right hon. and learned Friends the Attorney-General and the Chancellor of the Exchequer have both said at various times that the principle behind this Clause is to catch persons who purchase property abroad as a method of tax evasion. This is apparently increasing and I for one do not wish to see it continue.
Whilst I accept the general intention of this Clause, like many of my hon. Friends I am concerned about the operation of the Clause as it affects genuine investors. Some of my hon. Friends have advanced arguments for amending Clause 23 so I will not waste the time of the Committee in further discussing these proposals. Anyway, most of them have been rejected. I should, however, like to add one or two small points.
Investment abroad, despite what has been said by some hon. Members, in many cases has been made at considerable risk and not all in luxury parts of the world. A considerable amount of investment has been made in Africa, for example—investment which this and previous Governments of this country, whatever their political complexions, have urged people to make. They have made a considerable contribution to the economic welfare and viability of those countries, including under-developed countries. In fact, they are an essential and, indeed, major part of our economic

aid to those countries. If the Clause becomes law in its present form there is a real danger that our investment abroad will be greatly reduced.
After the comments made so far about the West Indies, I hesitate to introduce any such comments into my argument, but apart from the luxury side of certain aspects of life in the West Indies there is no doubt that this is one of the under-developed parts of the world. My right hon. and learned Friend will be aware of the concern felt in parts of the West Indies about the effect of this Clause.
I understand that the Government of the Bahamas, for one, are worried about the slowing down of much-needed British capital which has been invested in the tourist industry in the past. Mr. Sandys, who is the chairman of the Bahamas Government Development Board, said the other day:
We are not interested in the tax dodger, but freedom from United Kingdom estate duty could be a plus factor in the flow of investment money to the Bahamas.
There is another side to this problem as well, and it is this. As there is a likely decrease in British investment in these countries, at the same time there could be an increase of foreign investment—for example, from Germany where there is no duty on overseas real estate owned by German nationals, and from America where I understand there is no duty on property owned by Americans abroad, although I understand that President Kennedy has indicated that lesiglation is to be introduced, but even if it is introduced American rates of estate duty are considerably lower than ours.
My hon. Friends and I who have appended our names to certain of these Amendments will obviously accept the need to catch tax dodgers, especially death duty dodgers, but we feel that the Amendments standing in my name in page 35, line 45, to insert a proviso and in page 37, line 13, to add subsection (7) are on the right lines, even if the drafting is not perfect, in order to draw distinctions between these people and genuine investors.
The Amendment in page 35, line 45 suggests proportionate reductions in Estate Duty ranging from 25 per cent. to 100 per cent. depending on whether


a foreign property has been owned by the deceased for between five and twenty years. I hesitate to suggest that it is a better Amendment than the Amendment in the name of my hon. Friend the Member for Nottingham, South (Mr. W. Clark) in page 35, line 45, which also seeks to insert a proviso, but I think it is perhaps nearer the Chancellor's intention of catching tax dodgers.
I ask my right hon. and learned Friend to give the spirit of these Amendments every consideration on Report, even though he cannot agree to an Amendment tonight. The other Amendment standing in my name, in page 35, line 45, attempts to deal with what seems to me to be inequitable under the Clause, namely, that Estate Duty should be payable on foreign property where this has not been purchased by the deceased as a means of evading Estate Duty or anything else. Surely my right hon. and learned Friend knows that many of them have been held overseas for many years, some for centuries. When first established, they were established at considerable risk, and many fulfil a very important part in the economy of the overseas territory concerned.
I ask my right hon. and learned Friend to give very earnest consideration to this position and to see whether at a later stage of the Bill he could not adopt an Amendment to this effect.

Mr. F. M. Bennett: I want to ask my right hon. and learned Friend a question supplementary to the reply that he gave to my hon. Friend the Member for Wimbledon (Sir C. Black) which I do not think either of us clearly understood.
Let me give a practical example. Suppose someone two years ago who owned land overseas gave it away to somebody living outside the jurisdiction of this country. Are we to understand from my right hon. and learned Friend's reply that although the land was given away two years ago, within the five-year rule, and never came within the purview of the executor over here, its value is to be held to account so that the estate in this country will have to bear the full burden of the Estate Duties not only on the estate coming into the hands of the executor but also on the estate which had passed out of the hands—

The Deputy-Chairman (Sir Robert Grimston): The hon. Gentleman is getting a long way from the Amendment.

Mr. Bennett: Robert, I have been trying to repeat, for elucidation, a question put earlier which you ruled in order.

Mr. John Farr: I support the Amendment moved by my hon. Friend the Member for Nottingham, South (Mr. W. Clark).
I should declare an interest in this matter. I own a tract of agricultural land in Southern Rhodesia. Normally if one declares an interest in a subject under debate, the words that follow can, perhaps quite reasonably, be suspect by one's hearers.

Mr. Callaghan: The hon. Member is not going to die yet.

Mr. Farr: However, hon. Members may agree that it is of some advantage in this case to have an interest to declare in that I am able to tell my right hon. and learned Friend something about the very real difficulties that holders in this country of investments overseas have to face as it is without added difficulties being imposed by the Finance Bill. As I said, I support my hon. Friend's Amendment, but I would rather see neither Clause 23 or Clause 24 in the Bill.

The Deputy-Chairman: Order. I am sorry to interrupt, but these are points which would be better raised on the Question, "That the Clause stand part of the Bill". They are outside the scope of the Amendment. Perhaps I ought to have been a little tighter on the previous Amendment. We cannot go on spreading ourselves all over the place. As I have said, these points can be raised on the Question, "That the Clause stand part of the Bill".

The Attorney-General: I will deal with the Amendments which have been under discussion as briefly as I can but at the same time comprehensively.
My hon. Friend the Member for Kingston upon Hull, North (Mr. Coulson) seemed not to appreciate quite what I have already said once this evening and what was said by the Chancellor and myself on earlier occasions, namely that while the occasion for the change is the


evasion of Estate Duty that is going on at the present time, the intention is to make immovables abroad subject to Estate Duty just as movables abroad have been for many years. It is not just the case that the intention is to catch the tax evaders. It is because of the tax evasion that it has become necessary to change the law, and, in changing the law, to bring immovables abroad into the scope of Estate Duty, I should like him to approach the problem with that in mind.
The two other Amendments are similar, apart from the periods involved. Both my hon. Friends commented on the nature of investment abroad. It should he recognised that some of this investment—for instance, perhaps, in Jersey and other territories—has not always had an entirely beneficial effect. I leave that on one side, however, for there is no point in discussing it now.
The first Amendment deals with the acquisition of beneficial interest. It does not, as my hon. Friend the Member for Nottingham, South (Mr. W. Clark) suggested, deal with gifts inter vivos, and the ordinary rule with regard to such gifts will apply whether or not the property is land overseas or in this country or any other form of property.
My hon. Friend asks that if land is held for five years or more prior to the date of death it should be exempted from Estate Duty. That would cut down the scope of this proposal very considerably. It has to be borne in mind that the Amendment is not confined to property acquired before the date of the Budget announcement. It would also apply to property acquired at any time in the future as well as in the past. Therefore, to accept such a provision would be to hold out a continuing inducement to would-be avoiders to buy immovable property abroad in the hope of surviving five years after the purchase. Even if the person survived for only two years, that would bring a worth-while advantage.
While I appreciate the intention behind the Amendment, the effect would be more or less to nullify the proposal to charge duty on foreign immovables. It might exclude some obvious cases of avoidance—death-bed purchasers taking advantage of advertised offers to arrange

everything in 72 or 24 hours—but by no means all investment in foreign immovables, if it takes place near the end of a tax avoider's life, is made with regard to the avoidance of tax.
If the object of the Amendment is to distinguish between the tax avoider and the genuine investor, it would not be achieved in the case of the death-bed or near death-bed purchaser. We do not feel, for these reasons, that we could accept the proposal of my hon. Friend the Member for Nottingham, South. Nor can we accept the last Amendment. It would have the same effect. It would not be confined to property acquired before the date of the announcement, but would include any property acquired in the future. If I had to choose between the two, I would say that the last Amendment was the better, but for the reasons I have advanced against the Amendment moved—they apply equally though with not quite the same force—I must ask the Committee to reject it too.
The first of the two Amendments being discussed with that of my hon. Friend the Member for Nottingham, South, seeks to secure that
…in the case of any person so dying, this subsection shall not have effect in relation to any immovable property situate outside Great Britain acquired by any such person as devisee or legatee or on an intestacy or other devolution on death.
That would mean that the purchaser of an estate overseas would find it liable to Estate Duty. On the death of anyone who inherited from him, to the second, third and fourth generations may be, then the estate would be exempted from Estate Duty. I really could not advise the Committee to accept that. It would really lead to the very kind of difficulty, which my hon. Friend the Member for Nottingham, South said he was against, by having two categories of property, perhaps adjoining—I thought that there was great force in his argument—one exempted by law from Estate Duty and the other not, and the one exempted going on indefinitely.
12.30 a.m.
I have endeavoured to deal with the points made, even though rather shortly, but I hope the Committee will appreciate that serious consideration has been


given to them. For the reasons which I have given I cannot advise the Committee to accept the Amendment.

Mr. Coulson: Will my right hon. and learned Friend answer one question? Will he accept the spirit of my Amendment if restricted to property acquired before 9th April this year?

The Attorney-General: I am sorry to disappoint my hon. Friend again, but the answer to that, I am afraid, is "No".

Mr. David James: My right hon. and learned Friend said the occasion was evasion, but the intention was to catch fixed assets. Why should a perfectly sensible and reasonable occasion, to which all subscribe, give rise to an intention to change the law of sixty-five years' standing?

The Attorney-General: I can answer that quite shortly. It really is an anomaly that when movables abroad are subject to Estate Duty, immovables are not. I said earlier in the debate that I could see no justification for the distinction. If a man has an estate here worth £ 20,000, when he dies he pays Estate Duty on the lot. If he has £ 10,000 here and £ 10,000 in movables abroad, he pays Estate Duty on the lot. But at the present time if he has £ 10,000 here and £ 10,000 in immovables abroad, he pays Estate Duty on £ 10,000 only. When we consider the equity and logic of this I cannot see any ground on which one can justify the retention of that exemption.

Mr. Geoffrey Hirst: I am very grateful to my right hon. and learned Friend for dealing with this matter with great courtesy and patience but not, I am afraid, with a frightful lot of sympathy. I am quite sure that in supporting my hon. Friend the Member for Nottingham, South (Mr. W. Clark) I am saying what he is thinking. Indeed, my name appears on the Amendment. We had in mind letting down fairly lightly those who hold such property abroad for genuine purposes. I think that we have heard a bit too much about Jersey mortgages. That is not the fundamental background against which to view these investments abroad.
This sort of investment has been something which has been accepted as

perfectly reasonable by both sides of the Committee. The Amendment may be worded badly. It is difficult to word these things accurately. There would not be an awful lot of last-minute dodgers. In the main, they would be people with funds abroad invested for genuine purposes, and it would not be unreasonable to do something about them.
If my right hon. and learned Friend's argument that this procedure inter vivos will perpetuate this sort of concession is correct, then, quite frankly, these people can perpetuate it by entering into inter vivos arrangements. I am not, if I may respectfully say so, deeply impressed with that argument. I am afraid that my right hon. and learned Friend is being rather unsympathetic to the genuine person who has taken a great deal of risk. That the flow of capital overseas is going to be accentuated is quite the wrong idea.
If there is this business of Jersey mortgages going on, that must be stopped and it is perfectly reasonable that it should be stopped and in that the Government would have the united support of the Committee. But a large volume of opinion in the Committee and outside is worthy of more consideration by the Government and we are concerned with genuine investors who have been encouraged to invest abroad, who have taken these political risks and whose investments have hitherto been exempted for well-known and perfectly sound reasons acceptable over many years. Using the argument that something which we are trying to stop may be perpetuated if we try to meet those people, when the present abuse can be stopped by the ordinary law, is unkind, unreasonable and unjust.

The Attorney-General: I will reply very shortly to my hon. Friend the Member for Shipley (Mr. Hirst), who warmed up considerably as he proceeded with his speech. I make no objection to any of his observations. I am sorry that he thought that I was unsympathetic, but I was glad that he did not accuse me of being enamoured of Estate Duty. I should have resented that.
At the same time, none of the suggestions put forward so far has drawn a line to distinguish between the genuine investor in land and the one


seeking tax evasion. When my hon. Friend speaks of a genuine investment in land, I would have thought that it would be rather hard to say which form of investment was more beneficial—the investment by the creation of industry in an overseas territory, the building of a factory, the starting of a company, running a company, the buying of shares. They may be very beneficial, but shares have been liable to Estate Duty throughout. I hope that my hon. Friend will not think that I am unsympathetic when I say that I find it difficult to see any real logical justification or justification in equity for continuing to exempt this one form of possession.

Mr. F. M. Bennett: Why wait ten years?

The Attorney-General: It can always he said of something that it should have been done before. It might have been done in 1894. The occasion has now arisen because of the abuses and when we are tackling abuses these things are brought to light. My right hon. and learned Friend is right in his decision to eliminate this anomaly as that will do something to restore equity not only between persons who own property in this country and those who own property overseas, but also between the owners of different forms of property.

Dr. Alan Glyn: My right hon. and learned Friend said that he could see no difference between a person who owned shares and a person who owned the reality. I should have thought that the difference was fundamental. Whereas the person who owns shares can readily dispose of them and they can be readily valued, the person with real property, when that property has been under someone else's jurisdiction, has property which it is difficult to value and difficult to realise.

Amendment negatived.

Question proposed,That the Clause stand part of the Bill.

Mr. Farr: Sir William, when your predecessor in the Chair very properly called me to order, I was saying that I thoroughly objected to Clauses 23 and 24.

The Chairman: Order. The hon. Member is going too far. We are discussing Clause 23.

Mr. Farr: I was going on to say that ten years ago, when the Labour Party was in office, it had had six years in which to pass legislation of this sort and that, for one reason and another, it had not seen fit to take any action. To me this piece of legislation smacks of Socialism.
I want to refer to the important part that private investment from this country is playing overseas at the moment. In 1961 total private investment overseas amounted to the staggering figure of no less than £357 million. In 1960 it was £336 million. In 1959 it was about £344 million. These figures include investments by oil companies and by insurance companies, and investment in stocks and shares, but the larger part of the sums refer to private investment in property of various sorts.
I know that my right hon. and learned Friend agrees that it is essential to encourage private investment from this country in overseas territories. There is at the moment no practical incentive for people to invest in movable property, but there is some slight incentive to do so in immovable property because it cannot be assessed for Estate Duty in this country, although it can be, and frequently is, levied in the overseas country in which the immovable property is situated.
Sir William, is it in order for the hon. Member for Cardiff, South-East (Mr. Callaghan) to mutter continually when an hon. Member is endeavouring to make a speech?

The Chairman: The Committee is aware that it is certainly for the better if speeches are not interrupted by too much conversation, but a little conversation is often our experience.

Mr. Farr: Before your predecessor called me to order, Sir William, I was saying that there was some advantage in having an interest in the subject under discussion, and I specifically want to point out that if a person in this country has an immovable asset overseas, for instance, a block of agricultural land such as I and other hon. Members on this


side of the Committee have, or a business, or a factory, he has considerable difficulty in operating his business from a distance of 2,000 or 3,000 miles.
Right hon. and hon. Members who have a farm or a business in the wilds of Cornwall find it extremely difficult to run that farm or business if other duties demand their presence in London. It is slightly more difficult for those whose interests are in Scotland or Northern Ireland and who have to live in London. How much more difficult is it for someone who lives in London to run a business 5,000 miles away?
In addition to that discouragement from investing in immovable property overseas, there is the political risk to which reference has been made. The point was made that the value of property in Africa—and more particularly in Kenya—and Algeria—which is not entirely French—has plummetted to virtually rock bottom in recent years.
12.45 a.m.
To sum up, I have three points I wish to emphasise. First, I emphasise that anyone brave enough to invest in immovable property overseas under present conditions has a very difficult task to control and develop his enterprise and make something of it as conditions stand. Secondly, there is a danger, almost overnight, of rapid depreciation of what once was a fine going concern to practically nothing due to some political upset or explosion in the country where the immovable asset is situated. Thirdly, as my right hon. and learned Friend himself and other Treasury Ministers have said many times, there is a great necessity to encourage, not to discourage, all forms of property investment from this country in territories overseas.
It is not the task nor the duty of this Government to make it more difficult for people in this country to invest in our Commonwealth overseas. I remind them that our Commonwealth and former Empire was founded in the first place by private investors going there and investing their own individual skill and knowledge and capital. It is the free interchange and exchange of capital between the mother country and territories of our Commonwealth overseas

which tend to form one of the strongest remaining links which hold the Commonwealth together.

Mr. Callaghan: I confess to a little impatience with some of the speeches we have heard. I hope that I shall be allowed that impatience because, with hon. Friends and with members of the Front Bench opposite, I have sat here all day. Sometimes this House reminds me of Soho in that it is very respectable in the day-time, but it should be seen after 10 o'clock at night.
To spend an hour and a half on an Amendment which I am willing to bet does not affect many of my constituents and, I am equally willing to bet, does not affect many of the constituents of the hon. Member for Harborough (Mr. Farr)—indeed only a tiny proportion—is enough to make one impatient. I am all in favour of a reasonable discussion about a matter which affects even only one person, but when I consider the disproportionate amount of time spent on this in comparison with other matters and when hon. Members present their own personal interest, there is reason for our impatience. If hon. Members opposite are not satisfied, then they have their remedy; they could divide against the Government, but they will not do that.
I am sorry if I interrupted the speech of the hon. Member. I did not mean to do that; that is the fault of the microphones rather than a fault of mine. I wish that hon. Members opposite had been here to help us with some of the other Amendments which would affect 30 million or 40 million instead of spending an interminable time on an Amendment to which the Government had made their opposition quite clear and on which their supporters clearly would not divide against their Government.

The Attorney-General: I do not want to say anything to encourage my hon. Friends to divide on this matter. We have had an interesting debate and the points have been somewhat complicated. I am personally glad to have had the opportunity of putting forward the reasons for the attitude of the Government and I take full note of What my hon. Friend has said.
I said to my hon. Friend the Member for Wimbledon (Sir C. Black) that I would write to him on a point he raised. If my hon. Friend the Member for Torquay (Mr. F. M. Bennett) would like to write about the point he raised, which does not arise on the actual content of the Clause—the effect of legislation overseas on remittances to this country—I shall certainly see that his inquiry is answered. I also take full note of what my hon. Friend the Member for Harborough (Mr. Farr) said. I endorse and support the interruption of the hon. Member for Cardiff, South-East (Mr. Callaghan) to this extent, that now, having discussed this matter very fully and in the light of what I said about considering the matter between now and Report, perhaps we could have this Clause and proceed with the next business.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clauses 24 to 27 ordered to stand part of the Bill.

Orders of the Day — Clause 28.—(SHORT TITLE, CONSTRUC- TION, EXTENT AND REPEAL.)

Question proposed,That the Clause stand part of the Bill.

Mr. Callaghan: We started the consideration of the Bill 28 Clauses, 104 Amendments and 10 Schedules ago. I thank the Treasury Ministers for their unfailing courtesy throughout the whole of these debates. This is the first series of debates of this sort at which I have been present, and the Treasury Ministers have responded to every request made to them in a way that no one could take exception to.
I have only one disappointment, which perhaps even at this late hour can be remedied; the Solicitor-General has sat silent right throughout the whole length of our debates. He reminds me of the swan of classical mythology who gave vent to one burst of beautiful song and then expired. I should not like the hon. and learned Member to expire, but

I should like him to explain subsection (3) before we leave the Bill.

Question put and agreed to.

Clause ordered to stand part of the Bill.

The Chancellor of the Exchequer (Mr. Selwyn Lloyd): I beg to move,
That the Chairman do report Progress and ask leave to sit again.
It is perhaps appropriate that I should intervene to acknowledge what the hon. Member for Cardiff, South-East (Mr. Callaghan) said about the performance of the Treasury Bench. My own performance has not been very lengthy, but I am grateful to my colleagues for what they have done. We have succeeded in getting through a long Bill with a reasonable degree of co-operation—not an excessive degree, but a reasonable degree. That being so, and it now being nearly one o'clock, I think that we should end our proceedings on the Bill for tonight. I hope that we shall be able to deal with the new Clauses in the same way.

Mr. Callaghan: I want to make it clear that I was referring to the courtesy of the Treasury Bench rather than to its performance. I should not like it to get too swollen-headed.
As for the degree of co-operation, I do not think that the Chancellor, at this time of night, should rebuke his hon. Friends for their failure to get through the Bill more quickly. I agree that since eight o'clock we have done nothing but discuss Conservative Amendments, but in the spirit of forbearance that prevails it is not very comely of him to speak of his own back benchers like this. I am glad that we have been able to extend our co-operation to get through the Bill in the way we have, getting our points across and putting our case. I think that the Treasury Bench has had a fair chance of putting its case, also. If it has failed to seize the opportunity, it is not because it has not had the time. I am glad that we are moving to the new Clauses next week.

Question put and agreed to.

Committee report Progress; to sit again this day.

EMPLOYMENT (IRVINE VALLEY, AYRSHIRE)

Motion made, and Question proposed,That this House do now adjourn.—[Mr. G. Campbell.]

12.54 a.m.

Mr. William Ross: I have listened with growing interest for several hours, but, I must confess, with diminishing sympathy, to the pleas of hon. Members opposite for tax concessions in the sphere of Estate Duty which, had the Amendments been accepted, would have involved as much as £10 million in a year. Therefore, even though it is just before one o'clock, I make no apology for entering a more modest claim for Government help in respect of the needs of the ordinary men and women of Scotland.
I am seeking to persuade the Board of Trade to take an active interest in the industry, property, and well-being of the Valley towns, three proud and historic small burghs that flank the River Irvine, Daniel, Newmilns and Galston. I say historic: if anyone is deluded by the ring of modernity in the name Newmilns, I would remind them that it became a burgh 470 years ago.
Each of the three small burghs has an individuality, character and attraction of its own. They are proud of their past and they have a healthy and an almost legendary rivalry in municipal, cultural and social progress. They share more than geography and the River Irvine. Here in this valley is a survivor of Scotland's once great interest in cotton—of the days when Glasgow rivalled Manchester, before coal and iron conquered the West. It survived because it specialised and made its own lace industry. The Irvine Valley, with some help from Nottingham, curtained the world. But we have to face the fact that today this industry is contracting. I will not say that it is declining. I hope that it is only contracting.
Changes have come about. Man-made fibres, tariff walls in the United States. and quotas in the Commonwealth, have led to the difficulties and it seems that the contraction is likely to continue. Firm after firm has gone out of business, and men and women who gave a lifetime to one industry, often to one firm,

are today jobless. Once again we learn the hard way in Scotland of the need to diversify, and firms which once resisted the local desire for such diversification are now themselves out of business. In the Irvine Valley today there is urgent need for new industry to maintain locally the level of employment and the opportunity of employment for young people.
I know that the Minister will rest his case for refusing to put the Irvine Valley on the Schedule of the Local Employment Act on the basis of the figure of unemployed. I would remind him that his powers in respect of that Act are not related entirely to existing unemployment, but refer also to the prospect of unemployment. I remind him also of what has been urged by the Toothill Committee and others that he should have some creative interpretation of that Act in areas of possible industrial growth. To my mind that is what the Irvine Valley could be.
Let us look at the figures for unemployment. We must remember that these are small towns. In April the figure was 186, of which 96 were women. I know that that figure had dropped to 155 on 14th May but I wonder whether the Minister can give the figure for the week starting 21st May, because when I was last in the Valley a short time ago there were at least 100 people working week about. In other words, men worked for one week and were unemployed the next, and if one takes the figure for a particular week an entirely different picture is presented. The registered unemployment figure does not give the full picture. The ratio of women to men in the textile industry is two to one. There are more women in the industry than men. But the industry in the Irvine Valley is traditionally one in which a great number of married women are employed. If they are not paying full insurance, and most of them are not, there is no record of them at the employment exchange. They are not entitled to benefit. The same is true of the widows who draw the full pension. There is considerable concealed unemployment.
Thirdly, many people, and especially young people—and we know this is true from the records of union membership—have disappeared; have been forced


to leave the district. Most of them come south to get employment—an unhealthy feature of the Scottish position. The outlook for young people is another aspect that must be considered. In Scotland today there are only 66 jobs for every 100 boys while, in the Midlands, there are 762 jobs on offer to every 100 boys. When we realise that within four weeks there will be the greatest flood of new entrants to industry leaving the classrooms of Scotland, we appreciate just why there is so much cause for concern about this position, not only in the Irvine Valley but elsewhere.
Never in the post-war period has the position in the Irvine Valley been more difficult. We have the languishing lace industry. Jobs once available on the railway—not only most of them gone but the rest of them going. The slackened general trade in the town reflects the lower spending power in the community. The Scottish position is apt to illustrate the Valley's position in respect of young people.
Those young people are not living wonderfully affluent lives, as a noble Lord suggested the other day, on the princely sum of 32s. 6d. a week unemployment benefit—and they get that 32s. 6d. only if they have worked for a year, and then there is another five months before they qualify for drawing anything at all. That remark indicates that the "birkie" type of lord is just about as out of touch with things in Scotland today as he was in the days of Burns.
Judging by the Answer given to me a fortnight ago, the Government are either ignorant of, complacent about or indifferent to the fate of places like the Irvine Valley. They say that one manufacturer has changed to Terylene. Does not the Board of Trade realise that that is one of the causes of decline in employment and, by its very nature, cannot be the cure? It may solve a manufacturer's problem, but not the problem of unemployment, because of the number of people employed and because of the durability of the material as compared with the cotton formerly used.
Secondly, the Government say that Kilmarnock has been absorbing, and will continue to absorb, the unemployed, but Kilmarnock has its own problem. It

has 1,000 unemployed, with more to come, although the figures may have improved a little as a result of short-time people coming back to the job in the last month. Shortly after that Answer from the Minister of Labour, we find that we shall pay the second instalment of Saxone becoming an outpost of Mr. Clore's footwear empire; between 100 and 150 people will be redundant in Kilmarnock on the retail side of that business. As a railway centre, we see little to hearten us in the bitter pills provided by Dr. Beeching.
I would not have minded, if the Board of Trade had seen fit to schedule Kilmarnock for assistance—but no. As soon as the Bill was introduced we were taken off the schedule, so no help is available there. What we really want is for the problems of the Irvine Valley to be solved in the Irvine Valley. These historic towns should be allowed to retain their industrial independence and their lively community spirit. The people do not mind going to Kilmarnock to see a good football match, but they want to exercise their industrial skills in their own factories in their own towns. They are determined not to become dormitory suburbs of a larger unit.
The town councils and the trade union, the Scottish Lace and Textile Workers' Union, have formed an active committee—the meetings of which I have attended with the Provosts of Newmilns, Darvel and Galston—and they hope to interest prospective employers and manufacturers and to promote interest in the Valley as an industrial location. We can offer unique advantages. It is a pleasant place with pleasant surroundings and the factory buildings are almost unnoticed. It is one of the loveliest of all the Scottish valleys and there is plenty of skilled labour with centuries of tradition behind it. There were weavers here before cotton and before Alexander Morton introduced the industry.
We have schools. We have roads providing easy access to Glasgow. We are near Glasgow and there is the London Road to Kilmarnock. We also have factories, but they are lying empty. We are not asking for advance factories to be built. We have them already. One factory after another has gone out of production. At the William Morton


factory at Newmilns there is 36,000 sq. ft. of factory space, offices, showrooms and designing rooms. There is also room for expanding over another 1,350 sq. yds. At the factory of Dobson and Brown, in Darvel, there is 26,719 sq. ft. of offices, two weaving sheds and so on. At Henry Gebbie's factory in Darvel there are weaving and winding sheds, offices, stores and garages covering 11,651 sq. ft. At Galston, in the Lade-side factories of C. W. Robertson, there is the lace factory covering 20,208 sq. ft. and the lino factory covering 23,351 sq. ft.—the two making a total of 43,559 sq. ft. Thus there is a total of 118,000 sq. ft. of factory space in this area lying idle.
The advantages to the purposes of the Board of Trade, the needs of Scotland and the demands of the Toothill Report are outstanding. I am not uttering a demand or pleading despairingly tonight. I am, in fact, offering the Government an opportunity to show that they mean business about Scotland's problems and that they are prepared to promote areas of industrial growth. I am offering the Government an opportunity. The labour is there. The factories are standing. It would not require very much in help from the Board of Trade to interest people in this area which could easily become a new area of growth, just as it did a century ago.
At one o'clock in the morning I am not sure whether it is today or yesterday, but even now Newmilns is carrying out a certain amount of publicity. Today or yesterday interviews were taking place with a team of Americans who are here. Our links with America are close. On one occasion these weavers, despite heavy unemployment as a result of cotton supplies being interrupted by the Civil War, were moved by their broad humanitarian instincts and sent a message of encouragement to Abraham Lincoln. He replied by sending something back to them—the American flag—which for many years flew proudly in the area. At a ceremony not many years ago that flag was replaced. Need I mention that we produced Alexander Fleming? I hope that we shall have new American capital coming into the area.

Mr. William Yates: Has the French industry been approached about going to the area?

Mr. Ross: Not so far, to my knowledge, but I hope that someone in France reads what has been said in this debate and will appreciate the advantages and will be encouraged by the Board of Trade to come to this valley. I am offering the Government the opportunity to show that it means business about Scotland's problems by promoting areas of industrial growth and by getting away from the patchworth operation of the Local Employment Act. After all, the figures which we had last Monday show that the Government must do more. In the last four or five years atone we have lost 84,000 jobs in Scotland, and there is no guarantee that we shall get all the jobs, amounting to 42,000, which are said to be in the pipeline.
I ask the Government to make a real start with the Irvine Valley, and to act on a much wider interpretation than has been done under the Local Employment Act.

Mr. James H. Hoy: I will say only a few words in support of the admirable case which has just been presented by my hon. Friend the Member for Kilmarnock (Mr. Ross). We expect the Parliamentary Secretary to tell us, first, whether he is going to carry out not only what was recommended in the Toothill Report, but what was recommended before. We should use these areas as growing areas. Here, as my hon. Friend has said, are the factories and the people and what we want to attract are industries based in Scotland itself.
What must be understood by the Parliamentary Secretary is that we cannot go on denuding Scotland of its workers. The exportation of workers from Scotland is no answer at all. The case cited tonight might be repeated throughout the whole of Scotland. The lives of these people are centred in Scotland and if we allow them to go derelict, then a large part of Scotland will go derelict, too. I hope that the Minister will be able to give us the help which we so much need.

1.12 a.m.

The Parliamentary Secretary to the Board of Trade (Mr. Niall Macpherson): I will reply first with a general point—that is, jobs in prospect. It must be the case that figures for jobs in prospect do not account for all jobs that are


to be expected. Those jobs in prospect should give rise to other jobs; for example, in ancillary industries to those Which are expanding, and there should be additional jobs in distribution. It must be made clear that jobs in prospect arise only from building projects Which are notified to us. They do not take any account of the natural growth of industries which do not require industrial development certificates and which do not have to come to the Board of Trade.
So, it is perhaps not a true picture to compare jobs which have been lost to Scotland with jobs in prospect. Those which have been lost are known and are definite. Those in prospect, on the other hand, are going to give rise to other jobs which will be connected with them. Also, we have the regular growth of industries which are expanding side by side with those which are contracting. With the industries which we now have in Scotland, there is good hope that the jobs arising from expanding industries will exceed the total of jobs lost arising from the contraction of industries.
I do not dispute that the Irvine Valley has been contracting. It has been renowned for generations in the lace industry, but fashions have changed in clothing, and in furnishing; and I think that this area was mainly concerned with furnishing. Fashions have changed and there has been a considerable contraction. To make matters worse, many countries including some Commonwealth countries, have placed difficulties in the way of our traditional exports of lace. All this has meant a contraction in cotton lace production which is estimated to have amounted in 1961 to less than half its value in 1954—a considerable contraction. Yet there still is a demand, and I think there will be a continuing demand for lace, and I was glad that the hon. Gentleman referred to a "contraction" rather than a "decline". We must assume that there will be a continuing lace industry in this valley and that it is not going to disappear altogether.
I was sorry that the hon. Gentleman made light of the idea that some of the lace manufacturers are trying to introduce new processes and of what my right hon. Friend told him, that knitting machines for the production of Terylene

lace have been introduced. That must be a good element. It is making use of new materials and keeping the industry alive.

Mr. Ross: Yes, but it is not a cure for unemployment.

Mr. Macpherson: There are still a couple of dozen firms of lace fabric manufacturers concentrated in this small area with a labour force of about 1,600. It is true that half of them employ fewer than fifty people each, and that may be one of the causes of the weakness, but the fact remains that no industry, apart from agriculture, employs nearly as many people in the area as the lace industry.

Mr. Ross: One of the advantages of the small unit is that there is more specialisation. One of the weaknesses is that there is less scope for specialisation.

Mr. Macpherson: At any rate, it represents a diversification and the use of new fibres. I am afraid that it is true that the number of firms is constantly diminishing, despite the efforts to find new lines. Another example is that some firms are producing cellular blankets on their cotton lace machinery.
The hon. Gentleman is anxious that new industry should be brought into the area to replace the changing lace industry and he wants my right hon. Friend to accord the Valley the privileges of a development district. I was sorry that he suggested that the Government were ignorant, complacent or indifferent. The Government are well informed of the position of the lace industry. They are by no means complacent about it or indifferent to it. It is extremely sad to see a traditional industry of such high repute contracting. I think nothing but a change in taste and fashion can arrest the decline of the lace industry. But the fact is that fortunately the decline has not resulted in serious unemployment. Indeed, there were fewer wholly unemployed at the April count than there were a year before.
The hon. Gentleman said that there is a special problem of female unemployment. It is a fact that the number was almost equally divided between men and women. I recognise that that means a higher proportionate unemployment of


women. I also appreciate that some women, particularly married women, might have difficulty in finding other work locally once they lost their jobs in the lace industry, and might cease to register for employment altogether. While one does not want to see anybody out of a job, one cannot describe unemployment in the Valley as serious. I cannot say exactly what the rate of unemployment is, but it must be rather less than 4 per cent. There is no record of the insured population, but the Irvine Valley belongs to the Kilmarnock group in which the insured population numbers nearly 35,000. The total unemployment there last month amounted to 2·6 per cent. of the insured population. In the Kilmarnock group of areas as a whole the rate of unemployment for women was about the same as for men.
The reason why there is no serious unemployment in the Irvine Valley is that it forms a single closely-knit pattern of travel to work with the rest of the Kilmarnock group, and Kilmarnock is within daily travelling distance, and I understand that there are adequate transport services.
The hon. Gentleman mentioned difficulties in Kilmarnock. I would not for a moment deny that at present there has been a recession there, but it is the main shopping centre and market town of North Ayrshire and its industrial expansion since the war has been most marked. It is true that new jobs arising from new building or expansion there are comparatively small—about 150—but firms like Massey-Ferguson and Glacier Metals have built up considerable labour forces.

Mr. Ross: Thanks to the Labour Government.

Mr. Macpherson: It is thanks to the firms themselves.
I think it only right to say that, while there are a certain number of people on short time there, Kilmarnock is a thriving and prosperous centre and brings in workers from all around.
The hon. Gentleman said that he wanted us to show that we mean business about Scotland's problems as a whole. But if we are to deal with Scotland's problems we must have a due sense of priorities. The facilities of the

Local Employment Act must be reserved for areas of high and persistent unemployment; and this is a question of priorities. I must tell him that there is no case for listing the Kilmarnock group of employment areas with 2.6 per cent. unemployment as a development district. Nor would it be appropriate to put the Irvine Valley on the list. My right hon. Friend does not consider that high unemployment which is likely to last either exists or is to be expected there because experience shows that labour displaced because of redundancy and so forth is being absorbed into employment elsewhere in the group as a whole. There is no serious unemployment at the present time in the area, and the experience is that redundant workers are absorbed elsewhere.

Mr. Hoy: The hon. Gentleman has been telling us all what he cannot or will not do. Will he finish by telling us what he proposes to do to give some help, because he admits that there is a problem?

Mr. Macpherson: What I am prepared to say is that we would most willingly grant industrial development certificates to any suitable industry that wanted to set up in the area and could not be influenced by the inducements of the Local Employment Act to go to a development district. As the hon. Gentleman said, there are attractions there in the form of factories which are available. That is undoubtedly some attraction to the area. Also, we would not refuse an industrial development certificate to any industry already in the area that wanted to expand.
But I am afraid that we could not agree to put the Irvine Valley on the list of development districts at present simply because it does not comply, in my right hon. Friend's view, with the requirements of the Local Employment Act. We do not believe that there is high and persistent unemployment there at present or that there is likely to be, simply because the experience is that, being within easy travelling distance of Kilmarnock, the people are readily absorbed in jobs there.

Mr. Ross: Will the hon. Gentleman take it from me that there is a pool of labour there which cannot be used because it is not mobile—the married


women and other older women? Will he look at this again? I believe that his right hon. Friend's view has been obscured by outdated dogmas in relation to the Local Employment Act, and he had better get rid of them quickly.

Mr. Macpherson: I am afraid that as we see the position at present—

The Question having been proposed after Ten o'clock on Wednesday evening and the debate having continued for half an hour, Mr. DEPUTY-SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at twenty-five minutes past One o'clock.